Rexel Says No to $9.4 Billion and QXO

According to Reuters, QXO, a firm started by Brad Jacobs to build a distribution company in the building materials industry, offered to acquire one of the electrical distribution industry’s top distributors, Rexel, for $9.4 billion (USD). The Rexel Board of Directors rebuffed the offer.

Reportedly the Rexel board did significant due diligence in evaluating the offer, which it should and has the fiduciary responsibility to do, and determined that the unsolicited offer “significantly undervalues the company and does not reflect its value creation potential through its Power Up 25 strategic plan,”

Considering the QXO Offer

Rexel’s market cap, based upon USD, is $7.55 billion. Based upon 2023 revenues of about $20.6 billion, the cap is 35.6% of sales.

Further, in considering its EBITDA, again based on 2023 and USD exchange rate, this is about $1.44 billion.

Given this, the offer was for 6.52x EBITDA or 45.6% of sales, based upon 2023, and does not take into considerations of Rexel’s 2024 acquisitions, of which there have been at least $400 million worth of acquisitions.

Having observed the US acquisition market, these multiples are a significant discount to US electrical distribution acquisitions so, it is expected that Rexel would turn the offers down. Reportedly “QXO is not currently planning to submit an improved bid, a source familiar with the situation.”

Rexel’s PE Partner

In the article, “QXO, formerly SilverSun Technologies, has held talks with Rexel and its biggest shareholder, Cevian Capital, about a possible takeover, the sources said. Cevian owns 22.9% of Rexel, according to LSEG data.” Upon further research, Cevian first started acquiring Rexel stock in 2015 / 2016 as, in 2016, it was reported that the company had slightly more than 5% ownership (the information was made public due to a reporting requirement.)

Presumably QXO, recognizing that a PE firm had been invested in Rexel for 8-9 years, thought Cevian would be looking to exit its investment. Perhaps they are, perhaps not. But either way, they couldn’t persuade the Rexel board to sell the entire company.

But it does beg the question, “could there be some type of ‘event’ coming in Rexel stock in the near future?” This does not mean Rexel would be sold, but perhaps Cevian sells its shares.

What’s Next for QXO?

Or perhaps QXO gets creative and offers a bid for solely the North American portion of Rexel. Since North America is about 40% of Rexel, then the $9.4 billion may be a market appropriate offer?

QXO, according to its website. “plans to become a tech-forward leader in the $800 billion building products distribution industry, with the goal of generating outsized shareholder value.” Its value proposition is that it will bring expertise in a number of areas to unlock shareholder value. Will it / can it, who knows. Jacobs has a track record where he has.

But he wants to do this in the “building products distribution industry.”

This may or may not mean the electrical industry.

• Could he deploy monies and stitch together contractor-oriented electrical distributors and enhance them with technology / resources … possibly, but the pickings are getting fewer and fewer each day and hurdles are growing. There is also a difference in building products and industrial products. The key is understanding the end-user markets, which differ.
• Could he build a multi-vertical company? Combine electrical construction, HVAC, plumbing, etc.?
• Could he redirect efforts to the HVAC market? The plumbing market? Perhaps building materials (lumber, flooring, etc.)

And remember, Home Depot acquired SRS for $18 billion! And this was a16.1X EBITDA!

Take Aways

If you are not familiar with QXO and their vision, you may find their home page an interesting read of the future of distribution as they view it. Visit https://www.qxo.com/

money continues to target the industry. Expect there to be more acquisitions driven by succession, estate planning, and the fact that there is “more money pursuing the market.”

Sonepar is investing heavily in technology. Rexel has, and reports that over 30% of their business in Europe is “digital”. This is QXO’s value proposition as they say “The building products distribution industry’s nascent use of technology, particularly AI and B2B e-commerce, represents a compelling opportunity for QXO as a tech-focused entrant. QXO’s combination of scale and innovation should elevate the customer experience, increase sales force effectiveness and enable margin expansion.
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According to industry data, e-commerce represents only a single- to mid-single-digit percentage of total revenue. This share is expected to triple by 2030.”

However, while technology can support a business, remember that there are over 80,000 electrical contractors in the industry. Will all revert to becoming technologists and change their buying process? The building products industries, which are, essentially, project-oriented industries, have historically been relationship-oriented. Will they grow to the definition of “relationship” be personal or to a process? Will business relationships give way to technology, or will technology enhance relationships? If it evolves strictly to technology, perhaps we’ll see manufacturers collaborating with marketplaces and 3PLs and online payment services and the role of the transactionally-oriented technology focused distributor eventually be eliminated with incremental margin either reverted to manufacturers or pricing eroded and contractors’ benefit?

There are interesting plays, in the electrical industry and in combination with other industries, where QXO could acquire companies and possibly affect change. Their interest in Rexel highlights the fact that almost anyone is a viable acquisition.

Further, those who believe in technology feel that there is further value that can be unleashed within distributors. The key for distributors … think about your value as it relates to your goals, your timeframe, your customer base and make the appropriate technology investments (and some of this could be in conjunction within a group of non-competing distributors).

$9.4 billion! Starting bid? Option #2?