The Second Derivative of Acquisitions / Mergers

The second half of the year has started and the first week brought acquisitions / mergers and news that will, and could, influence many other factors.

In most industry acquisitions, the acquisition of one company by another typically has most of its effects only on the acquired company. A number of recent deals will have further ramifications:

Prysmian and Encore

Earlier in the year, Prysmian acquired Encore Wire. The acquisition, in and of itself, blends product offerings. Many have commented about cultural and service differences, and opportunities, between the companies. Either both sides will become better and learn from one another or …

And then there are the manufacturer representatives. In some, perhaps many, markets Prysmian has at least two agencies. One for the electrical distribution market (which was the General Cable offering) and another servicing the utility / OEM / market (and sometimes one agency may serve both.) Encore consisted of representatives of all sizes. The company was infamous for many “smaller” agencies but also has some mid-sized and larger companies. The question is, what is the future? Do nothing? Two agencies recognizing that the core construction market (Encore Wire) and the more specialized / technical market (Prysmian) have different sells with differing levels of end-user and technical expertise needed? Combine it with one defined as “the best” agent? The industry will find out soon. The deal closed on July 2^nd. Sone announcement is expected in early August.

We have heard of agents jockeying for favor with Prysmian. Some have tried to hire personnel from Encore reps. Some soliciting distributor support.

Given the revenue, and commission dollars, generated by a wire line of the magnitude of these companies, the decision could affect the viability of an agency (especially small Encore reps.) May we see some agencies close? Would there need to be staff trimming? Will other lines drop an agent that loses their key line … and still others see it as an opportunity to join an agency that now has more time. We will see what the second derivative of this acquisition brings.

Canadian Distributor Acquisitions & Market Changes

There have been three distributor acquisitions in Canada recently. Electrozad sold to Sonepar in early June and last week, EECOL (a division of Wesco), acquired Independent Electric and Sonepar acquired Robertson Electric. Reportedly two more deals are pending with at least one going to a national chain.

Of the five distributors being sold, all are AD Canada’s members. In a market where there was much consolidation, there will be even fewer good-sized independent electrical distributors.

Further, given the AD / IMARK merger that will form IESD, a similar “coming together” of AD and IMARK in Canada is apparently occurring. While there is another electrical marketing group that caters primarily to showrooms in Canada (Spectra), feedback is that AD Canada and IMARK Canada members will have the opportunity to become one.

Could the Canadian market be a future view of the US market? Will there be one marketing group in Canada?

AD / IMARK Merger Approved

The IMARK Electrical membership approved the merger with AD Electrical to form IESD (Independent Electrical Supply Division) yesterday.

According to a press release, “The new Division will be a part of the overall AD community which will now include 1,410 independents spanning across nine construction and industrial verticals and fourteen divisions within in the U.S., Canada, and Mexico.”

The new IESD will have 725 members. We have heard of some larger companies aligned with national chains who apparently either are not being offered membership or declined membership effective the end of the year … a second derivative of the deal.

Manufacturers are also quietly wondering about manufacturers, on either side, who were not in the other group … will all get access to the membership of the new group with supplier lists being combined or will some suppliers be asked to leave? And then there is the issue of “there are lots of members … what will the new group’s offerings be?” For instance, the AD North American Meeting historically has had 1000+ attendees, how much bigger could it get and be effective for all parties? It will be interesting to see the second derivatives as this new organization evolves.

With 725 independent electrical distributors under “one roof” this can impact manufacturer channel strategies (for those inside and outside the group). It will be interesting to see the IESD / NAED dynamics given that IESD will have almost 3x the number of independent distributor members … will there be mor of an alliance or will it be left to individual members? Will rebate deals get differentiated between members based upon size? Support? The network could be an effective product training and product launch channel for manufacturers. New vertical marketing opportunities? Will distributors be more suspect about collaborative efforts given that all have more competitors in “their” group? Will there be operational benefits of the synergy?

Thoughts

Second derivatives. Law of unintended, or perhaps intended, consequences. Challenges.

All represent new opportunities as the electrical industry continues to evolve.

What opportunities can this bring to you? Hopefully, you have been doing some scenario planning, especially if you are a manufacturer.