Risoul, Allied Electronics and Rockwell … What it Could Mean in the US

RS Group’s acquisition of Rockwell distributor Risoul. Future consolidator? Opportunity for Allied Electronics?

During a recent conversation with Frank Hurtte of River Heights Consulting we talked about the acquisition of Risoul by RS Components, who is the parent of Allied Electronics and Automation. Frank specializes in the industrial automation space. As consultants like to do at cocktail parties and on the phone, we “blue-skyed” what this could mean.

A phrase that I thought encapsulated the “opportunities” (and yes, some of these opportunities could be deemed as “controversial”, perhaps “heresy”) that could come from this come from the infamous Toy Story movie … “To Mexico and Beyond” or perhaps “To Rockwell and Beyond”. This could especially relate to Rockwell Automation.

And, as a disclaimer, neither Frank or I have any inside information and/or malice towards any of these companies. We collaborated on the write-up and the idea generation. This is more “what if” as well as the reality that markets and channel strategies change.

Background

The big news last week came in the way of Allied Electronics and Automation’s (a division of the RS Components) purchase of Mexico and Latin America’s largest Rockwell Distributor Risoul.  This comes on the heels of several other acquisitions of Rockwell Automation Distributors in the US.  The latest of these was the Rexel acquisition of Horizon Solutions which took place in July.

Information coming from the sale indicates Risoul had sales of $166 Million with an EBITA of $19 Million.  This would indicate that Risoul was well run and would fall solidly into the upper quartile of electrical distributor profit performance as measured by Profit Benchmarking done by either the National Association of Electrical Distributors (NAED) for US electrical distributors or the Association for High Technology Distributors (AHTD) for US-Canada based automation distributors.

The announced $275 Million buyout represented an adjusted 12x EBITA based on a 12-month basis to June 30, 2022.

(Here’s a good article on MDM overviewing the deal).

Here are some points to consider.  A review of Risoul’s website would indicate they are more closely tied to industrial electrical and automation products than the typical full-line electrical distributor.  Applying some of the things we know about the Mexican market, we might estimate some benchmarks.

• The Mexican Electrical Market is approximately 7-10% of the US market.
• The US market is $134 Billion
• The Mexican electrical market is $9.5-13 billion
• Automation and industrial products (the “industrial segment”) represents 35% percent of the electrical market
• Assuming the same business mix as the US, the Mexican Automation/Industrial market is $3.3-4.55 billion
• Risoul’s share of the Mexican electrical industrial market is 3.6-5%

Rockwell Automation’s estimated market share in the US is estimated to range from 30-45 percent depending on the product mix included.  Comparable for Mexico?

This map shows the areas served by Risoul.  Based on a document published by the Mexican government, these areas represent a very large percentage of the industrial output of the country.

Risoul Locations and Sales Offices

There are other Rockwell Automation distributors serving other parts of Mexico.  These include OneSource (a Sonepar Company) in Tijuana serving the western locations and ABSA Group which has seven locations in what most Americans would call West Central Mexico.

Ramifications of this purchase

 First, we do not know if RS Components will operate Risoul as a separate business or if their will be integration with Allied.

Here is insight from Risoul and RS Components. Of note is RS Group’s CEO commenting “Risoul enables us to expand our position and execution expertise in the Americas.”

So, is “the Americas” North America (i.e., US), expand in Central America (other Rockwell distributor acquisitions?), South America? Could RS be an element of a broader Rockwell consolidation strategy that is ongoing based upon distributor sales (i.e., Rexel has purchased two in the US this year.)

But, assuming some integration, some things to consider:

 Allied Electronics and Automation has a major internet presence, and they represent over 650 manufacturers.  In several customer surveys conducted by River Heights Consulting focused on the users of Industrial and Automation equipment (End Users, OEMs, Systems Integrators, and Panel Shops), Frank discovered Allied played a major role in providing components not sold by the customer’s favorite distributor.  One might wonder if these products will be available to Mexican customers.  Further, for manufacturers without a Mexican distribution strategy, could Allied, and hence Risoul, be that strategy?

Again, thinking of the 650 manufacturers represented by Allied, a number compete directly with Rockwell.  Historically Rockwell has contractually required that distributors not sell core competitive products.  How might this impact any web-based strategies laid out by the company?

Many of the non-Rockwell product lines actively sold by Risoul are part of the Rockwell Encompass Partner Program.  Products on the Encompass Program can be thought of as the ancillary products which complement/enable Rockwell applications.  Many of these products are not currently part of Allied’s linecard.  Will Risoul serve as a tool for adding them to Allied’s product offering?

Many distributors in Texas, Arizona, and California engage in “cross border” selling.  Here’s how it works – Mexican companies purchase from them and then have them ship to a US-based address for forwarding on to the Mexican customer.  Typically, these customers purchase from distributors on this side of the border to get better prices, availability, or better support.  In a few instances, the US distributor will even provide after the sale services to the customer in question.  Often, the customers are served are Maquiladoras which now fall under the IMMEX program.  Based on the number of sales resources placed near the US border, one might guess Risoul has provided Rockwell products into many of these facilities.  Will the combination of Risoul and Allied perhaps impact other manufacturers in the future?

Amongst Rockwell distributors, the common wisdom is a healthy distributor business mix is approximately 30-35 percent Rockwell and the remainder other electrical products.  Many of the most progressive Rockwell distributors have migrated from product mixes close to 70 percent Rockwell to something closer to the 30-35 percent number.  They call this “going full line”.  There are no numbers available on Risoul but it is apparent they lack the depth of full line manufacturers on their line card.  Should they decide to follow the path of expanding their full line business, there will be an impact on the Mexican market in general.

Rockwell US Distributors

Thinking more “outside the box”, what could this also mean for US Rockwell distributors?

• For those who know Michael Marks, Indian River Consulting, he posted on LinkedIn that he had consulted with Risoul and was on their Board. Michael has also presented at Rockwell Partner Network Meetings.
• Given growth prospects due to “near-shoring” for many companies, industrial manufacturing in northern Mexico and “a contiguous APR”, was / could McNaughton-McKay have been interested in expanding to Mexico? The APR is contiguous to their Reynolds division and McNaughton-McKay has experience with overseas operations (they have a Rockwell distribution business in Germany.)
• If not McNaughton-McKay, perhaps Edge Global Supply which is an organization founded by a group of US Rockwell distributors that has ownership of Rockwell locations / distributors in Brazil, Italy and China. According to its website it has 10 remaining members, however, one includes Horizon Solutions and it is unknown if Rexel assumes this, the other members buy them out or there is another option.
• Given that RS Components (Allied’s parent) had not prior Rockwell experience, will Rockwell desire to have this relationship be a “south of the border” relationship or could RS, and hence Allied, or maybe a different “brand”, develop a relationship with Rockwell and become a viable Rockwell acquirer?
  • Perhaps RS Components becomes a consolidator of Rockwell distributors in Central and South America?
  • Or is RS now an “unofficially blessed” Rockwell acquirer?
• Could Rockwell see the benefit of a national online provider to support their end-customers and be willing to expand the relationship to Allied, even at a higher price point, to handle discretionary business? They could still provide distributors with a territory fee for sales generated by Allied within an APR (just needs to be handled with zip code level POS information … maintains customer confidentiality for Allied.)
  • Some may remember the days, years ago, when Rockwell experimented with online ordering with ra.com. It was a strategy to support “house” accounts and was in the early days of eCommerce. Could it have been ahead of its time?
• Also, and this isn’t just for Rockwell distributors, but distributors should consider how they can improve their websites, their site adoption and utilization (which means … market yourself to existing and prospective customers and developing more appropriate “public” pricing models to capture discretionary business. An element of this could also be more effective joint marketing with manufacturers (and funding) as well as analytics sharing.

Just some food for thought. Just because it was an acquisition of a Mexican distributor does not mean that it may not have U.S. implications.

Feel free to contact Frank or myself for other thoughts and how we can help you adjust to a changing market.