CED, Galco Make Acquisitions

The acquisition trend continues with CED and Galco announcing recent acquisitions. This brings the count to six electrical distributors acquired so far this year (NEDCO, Buckles Smith, Holt and ErieTec (which was acquired by Purvis)) on top of the 57 announced the prior two years, of which over 35 were last year.

CED Acquires Aroostook

CED’s Yankee division announced the acquisition of Aroostook County Electric Supply (ACES). Aroostook was a one location distributor in Caribou, ME, which is in Aroostook County. The company was over 50 years old with revenues of about $3 million.

While a small distributor, the company was known for being a community leader, serving the electrical needs of all within the county.

Some little-known facts about Aroostook County

• It is in the most northern part of Maine and borders Canada
• Population is about 67,000 people
• It is the largest county in Maine and the second largest in the US by total area east of the Mississippi River with over 6,800 square miles of land (which makes it bigger than 3 states!)
• It is known for its potato crop and is an emerging hub for wind power

The business was owned by Steven Arey, who is retiring.

CED is rebranding the company to Gilman Electrical Supply, which was established in 1961 by Goody Gilman and is a brand of CED and operates under the Yankee Division. Gilman has 10 locations in Maine.

While many may wonder why a company like CED acquires a small distributor like Aroostook when it could either hire the people / open a location or have a salesperson in the market and serve the region remotely. While I have no “insider insight”, my suspicion is that perhaps Aroostook ownership had a relationship with the CED local people and the CED’s Yankee / Gilman personnel saw it as an opportunity to support the community and “good people” who worked for ACES. The takeaway, for small distributors, is that there may be benefits in being friends with other locals as they represent future exit strategies.

The acquisition was confirmed via a LinkedIn posting.

Galco Acquires ZESCO

Galco Industrial Electronics (Galco), known either as an electronics or an automation distributor, announced the acquisition of ZESCO, Inc, an automation distributor serving customers in Ohio, Western Pennsylvania, and West Virginia.

Given that automation is a segment of the broader electrical industry, it counts as an industry acquisition and is an example of diversification and other acquirers. Galco is also owned by a private equity firm and does a significant online business. Many industrially-oriented electrical manufacturers are suppliers to Galco.

According to the press release:

“Galco Industrial Electronics, Inc. (Galco) announced that it has acquired Zesco, Inc., a regional automation solutions provider located in Brecksville, Ohio.

“The acquisition of Zesco further positions Galco as a global leader in the industrial automation and motion control industry,” said Allison Sabia, president and CEO of Galco. “Zesco’s expertise and experience with the world’s top brands in industrial automation combined with Galco’s extensive offering in the industry is a win-win for their customers and ours.”

Zesco specializes in the drives, motion control, and automation industry, and serves customers in Ohio, Pennsylvania, and West Virginia. Offering 16 product lines in 50 product categories, this acquisition not only expands Galco’s already impressive catalog of manufacturers but also is expected to further increase Galco’s drives market share.

With over 60 years of experience, Zesco’s industrial automation expertise aligns with Galco’s mission to provide customers with the highest level of service and technical support and the most comprehensive selection of industrial electronics and automation products and services in the industry.

“We are excited about the future of Zesco as a Galco Company. Galco carries the same fervor and commitment to providing automation solutions to their customers as we do,” said Tim Sustersic, president of Zesco. “This provides Zesco expanded capabilities in customer service, product application, engineering, and manufacturing support to better serve our customers into the future.”

Key ZESCO suppliers incliude ABB Drives and Motors, Yaskawa, Red Lion, and Weg. The 70 year old company specialized in drives, motion control and automation. According to this site, ZESCO’s revenues were about $30 million.

Given this markets industrial outlook and the fact that Galco can bring a broader product offering, especially in the industrial MRO space, this could be a very accretive acquisition for Galco.

Takeaways

There are some takeaways in the recent acquisitions which we expect to continue:

• Acquisition activity isn’t driven by the need to invest in technology. It is driven by generational change that is occurring within the industry. Many of the companies simply don’t have a succession plan. After the first or second generation, if the next generation isn’t active in the business, companies find themselves with these options:
  • Be an absentee owner and hire a manager or promote someone from management
  • Sell to management
  • Sell to private equity
  • Become an ESOP
  • Sell to a strategic acquirer
  • Close the doors
• Strategic acquirers are seeking marketplace expansion
• Companies are seeking segment diversification
• There is money available “for the right deals.”

For more insights and/or ideas if your looking to acquire or sell, give us a call.