Deals, Deals and More Deals – 5 in All

The past couple of weeks have seen more acquisitions and mergers occur in the electrical industry.

We’ve had

• Three more electrical distributors sell, bringing the number to 12 so far this year … Butler’s Electric to Sonepar, Controls and Electric Motor Company (CEMCO) to 3BG Supply Co., and Advanced Motion Systems to Applied Industrial Technologies.
  • And there is the possibility of a major deal brewing.
• A significant manufacturer deal with ECM Industries, the parent of Ilsco and more, selling to nVent.
• A rep merger with Ostermann Fox moving into New England via a merger with the relatively new Apogee Solutions.

Some thoughts on the deals

Distributor Deals

• Sonepar physically moved into the Wilmington, NC market with its acquisition of a small, one location electrical distributor, Butler’s Electric. Founded in 1948, the 75 year old company will now become a branch of Sonepar’s Capital Electric. The company has been focused on the small resi / commercial contractor market (which is the primary market in the area) but represents a growth opportunity as a number of the larger contractors in the state do business in Wilmington, the 8^th largest community in North Carolina. This is another instance of the second generation not having a third generation in the business and hence the need for a sale.

According to Linda Longo, editor of US LightingTrends, Butler Lighting, a residential lighting showroom, which is owned by Carlos Butler, a brother, was not part of the acquisition.

• 3BG Supply acquired Controls and Electric Motor Company (CEMCO). Yes, I know, two companies most have probably never heard of, however, CEMCO is a provider of electric motor and pump repair and sells electric motors, drives and related components and has a customer electric control panel design and fabrication shop.

3BG Supply, based in Ft. Wayne, IN, is a power transmission distributor that also sells electric motors and components and lists leading electrical companies.

This is another example of diversification as well as the niches that are within our industry.

• According to MDM, Applied Industrial Technologies acquired a small automation distributor in Rochester, NY – Advanced Motion Systems (AMS). This is Applied’s 3^rd acquisition of an automation distributor and, to a degree, mirrors Motion Industries’ diversification / expansion into this space.

While small, reportedly two locations and ten people, the company appears to have had a focus in the automotive, machine builder / OEM, packaging, food & beverage, medical devices / pharma, and electronics industries. This indicates areas of key customers (for a small company) and it is not unusual for automation distributors to have a vertical market expertise that may extend outside their geographic area (so, they follow their customers.) While the acquisition may have been opportunistic, given AMS’ size, it could have been for specific market (or customer) expertise.

Another case of diversification. It also begs the question to manufacturers of “whom calls on this audience and what is the definition of ‘electrical distributor’ in your rep contracts?

• And speaking of a major deal … David Gabriel, former CEO of Sonepar USA, may be “back in the game” as they say.

Gabriel was appointed as a senior advisor for Warburg Pincus, in their industrials group. For those not familiar with Warburg Pincus, they have more than $85 billion in assets under management, have raised 21 private equity funds and have invested over $108 billion in more than 1,055 companies worldwide.

There is no indication that Warburg Pincus is looking at an electrical distributor as Gabriel also was president / CEO of Hagemeyer North America (electrical and industrial distribution) and spent time in the automotive, food & beverage and pharmaceutical / CPG industries, but … The managing director of Warburg Pincus commented “Dave has a proven track record in distribution along with strong operating and strategic perspectives across a variety of relevant sectors. His experience growing market-leading companies will be incredibly valuable as we look to partner with outstanding management teams to build sustainable businesses at scale.

Since leaving Sonepar, Gabriel was a board member of Kaman Distribution and was a Senior Advisor for Sycamore Partners.

As they say … “you never know.”

Manufacturer Deal

nVent, best known in the electrical distribution industry for its Hoffman, Erico, and Caddy brands, made a splash with the $1.1 billion acquisition of ECM Industries, which is best known for its Ilsco brand.

The deal is for 2.65x revenues and an EBITDA multiple of 10.6

ECM, which consists of Ilsco, Gardner Bender, King Innovation, Utilco, Bergen Industries, FTZ Industries, Sperry Instruments, SSI, Calterm, IEI, and Briscon, had, according to the press release, combined revenues of $415 million. According to sources, Ilsco may have represented 40-45% of these sales.

Many feel that the key is the well-respected Ilsco brand and potentially Utilco, which manufacturers mechanical, compression and grounding connectors and tools for the utility segment given the expected utility market growth with infrastructure / grid investments.

ECM, was owned by Sentinel Capital Partners who had prior experience with the company through its ownership of Power Products.

The new acquisition will become part of nVent’s Electrical and Fastening Solutions segment.

nVent shared a presentation outlining how ECM fits its growth strategy. It will be interesting to see what nVent does with the array of brands (some of which were contract manufacturers to other companies, some manufactured in Mexico, and some had more of a focus on sourcing their offering.) The companies sold through diverse channels. If a rebranding of Ilsco occurs, and the company seeks sales and marketing (and customer) synergies, then one would expect some rep consolidation in the future.

To get a deeper sense of nVent, consider checking out their recent Investor Day presentation. Their EFS division, pre-ECM, was a $791 million division that grew 24% in 2022. 75% of this business is in North America.

Rep Deal

Osterman Fox and Associates merged with Apogee Solutions Group enabling Osterman to seamlessly expand into the New England market.

Osterman Fox, which focused on upstate NY, represents key lines such as Appleton, Hammond Power, Panduit, Rab, Legrand, Service Wire, nVent, Littelfuse

Apogee Solutions Group was founded as an outgrowth of when Panduit transitioned from a direct sales organization to a rep network. Dan Murphy, then a Panduit district manager, entered the rep business with a partner and they had a vision of an agency that served the electrical and electronic markets as they saw product, and channel, convergence as the future. We featured Apogee in October 2020.

Today Apogee has 12 lines

The “new” company is going to market, in New England, as Osterman Fox Apogee.

Takeaways

• The distributor deals follow the pattern of no succession and diversification.
• The ECM sale has long been discussed albeit nVent as the acquirer was somewhat surprising and some felt the deal was for a premium but if utility takes off, could be a bargin. Will they keep the other brands, spin them off, use it as diversification? No idea. nVent reps will be most interested in “next steps”, probably more so than distributors.
• Osterman and Apogee … expansion into a regional and, to a degree, representative of how that geographic market is changing with New England distributors (Green Mountain, Granite City, perhaps others) crossing into upstate NY … and the upstate NY market was always kind of “wonky” for manufacturers so there is no synergistic coverage.