Kichler Lighting Sold to Parent of Progress Lighting

A new month, a new acquisition. This one in the lighting industry with the private equity firm that owns Progress Lighting, Kingswood Capital Management, acquiring Kichler.

According to a communique that Kichler sent to its customers dated September 3^rd,

The subject of the email was titled “Opening a New Chapter in Kichler Lighting’s History.”

Kingswood’s acquisition may be reminiscent of Current’s acquisition of Hubbell Lighting. One of the premises for that deal was the desire (need) by GE Current (at the time) to “scale up” to be more competitive in the market.

For Kingswood, this may be similar given that:

• The acquired Progress at, what was then, reportedly an attractive price as the value, and revenue, of the business had declined.
• Masco, Kichler’s prior parent, purchased Kichler 6 years ago and is reportedly taking about a $400 million loss on the acquisition. The purchase price was “approximately $125 million” according to the press release.
• Kingswood, according to their website, is an “operationally focused private equity firm in the middle market.”

Some thoughts on Kichler’s sale to Kingswood Capital Management …

• Progress Lighting and Kichler both focus on the residential / lighting commercial market, inclusive of the multi-family segment. While some believe each company has an audience level it pursues, with Kichler being a “higher end”, the end result is a residential focus. Given how higher interest rates have impacted the residential new construction market and expectations that they are primed to decline, perhaps this is a play on a hoped-for residential decline?
• Ferguson, known as a plumbing distributor, is one of the largest customers for Progress Lighting and Kichler, with the business supported by many showrooms throughout the country. Ferguson’s website lists 1,052 Kichler products on its website and there are 1,018 Progress Lighting items on their website.
• It would not be surprising to see a PE firm combine the two companies / brands into one company and possibly offer two brands. This would then enable them to:
  • Adjust their sourcing by identifying overlapping products and perhaps give me purchasing power on sourced items.
  • Evaluate the sales organizations and combine, as appropriate.
  • Review organizational structures and obtain synergies, especially in back-office operations, let alone other systems.
• Further, in reviewing Kingswood’s transaction types, the company pursues carve-outs, investments in family / founder-owned businesses, special situations, and “operational turnarounds.” Given the reported $400 loss (and maybe more since the original acquisition was for $550 million.) Masco invested “much”, according to some, to improve the business. Whether it was the macroeconomic environment or other issues, essentially Masco gets 20 cents on the dollar.
• Combined, the company has a broader offering to approach national / regional builders to serve their needs and to offer more for the multi-family / multi-unit market along, potentially, with additional offerings for the light commercial market.

Linda Longo, US Lighting Trends’ managing editor for the residential market, shared two postings on LinkedIn that generated input from a number of people.

• LinkedIn post #1 with 11 comments (as of 9//3)
• LinkedIn post #2 with 4 comments (as of 9/3)
• An article she wrote where she shared some of the changes that Masco / Kichler made over the years and feedback she has received from the residential lighting community. Some theorize that the Kichler brand may fade away or become a niche brand under the Progress umbrella.

This deal impacts different types of electrical distributors dramatically differently (I know, the phrasing seems awkward!)

• Some distributors have lighting showrooms, and this could have a significant impact at the price point these lines covered.
• Residentially-oriented distributors, which typically are smaller distributors, will see change.
• For the “white goods” market, where many distributors play in the contractor-served commercial construction market, there will eventually be change but, for them, there are many alternatives.

Did you do business with Progress and/or Kichler? Thoughts about how the companies perform today? What do you suspect will occur longer-term? Will a combined company be more successful?

And maybe the $64,000 question is, knowing that a PE firm made the acquisition and a PE holding period may be 4 years (on average), what will be the longer-term game for this business? Flip it to another PE firm? Will any strategic buyer want it, if someone like Masco cannot be successful?