Another Distribution Acquirer … Another Industrial Competitor?

Last week a new competitor was introduced to the industry … and distributors, probably primarily Schneider Electric distributors that are authorized Automation and Control distributors, were introduced to a new acquirer (and competitor).  Graybar also probably now has a new competitor.

Zeller Corporation, an AD affiliate in NY, was acquired by Kaman Industrial Technologies.  For those who don’t know, Kaman is a $1.5 billion industrial distribution company that also serves the aerospace industry.  In 2011 the company had revenues of $951M in the industrial distribution market and expects to grow this to $1.5 billion with a 7% operating margin.  In 2010 the company acquired Minarik, an $84M automation house, for $39M.

Zeller is an $80 million distributor with 5 operating subsidiaries – Zeller Electric, Zynergy Solutions, VSG Enviromation, WAJA Associates and RC Controls.

A couple of thoughts:

• This is an example of an ID / PT distributor moving into electrical, which a number of electrical distributors have been doing recently (especially Rockwell distributors.)  The 2 product categories are complementary.  Kaman already carries a number of electrical manufacturers.
• With Zeller being a Schneider Electric ACE distributor, we wonder if Kaman spoke to Schneider in advance as this could represent a broader opportunity for both … for Kaman to be authorized for expansion, for Schneider to gain access to broader distribution. It would not be a surprise to see Kaman pursue other electrical distributors, especially those with Schneider’s automation appointment (there are currently 81 distributors listed as ACE distributors on Schneider’s website). Click here to see Kaman’s Q2 2012 investor presentation, which emphasizes their commitment to grow through acquisition.

• And according to Kaman’s PPT, they seem to pay 40-50% of sales for an acquisition? Minarik was 46%, we don’t know what Zeller was.

• Is Graybar’s industrial and automation initiative moving fast enough for Schneider?
• Neal Keating used to be the COO of Hughes Supply.  He is also on the BOD of Hubbell, so he understands the electrical industry.
• With Zeller being acquired, we presume that, once the deal closes, they will be required to leave AD.  Once this occurs, we wonder if IMARK will call on Kaman to get Zeller to join as IMARK has precedent for having members of publicly held companies. (i.e. Avon was a division of WESCO, Branch Electric was a division of Rexel)
• Presumably Kaman is considering how it can gain greater share of its customers’ wallet … and sell them more complementary products.

And, from a competitive viewpoint …

• Motion Industries, a Kaman competitor, also carries electrical suppliers, is owned by Genuine Parts (think NAPA).  Genuine Parts also owns an electrical distributor with many locations – although they are in niche customer segments.  Here’s Motion’s line card.  Could Motion expand into more of the industrially-oriented electrical distribution business?
• Applied Industrial Technologies is another industrial distribution / PT company. They carry motors, controls and a few other electrical lines.  Their CEO is Neil Schrimsher who was EVP of Cooper Industries, President of Cooper Lighting and had previous experience at Siemens and GE Lighting.

Could Kaman, Motion and AIT become new electrical distributor acquirers? Is moving into the ID / PT market opportunities for industrially-oriented electrical distributors? Will traditional electrical manufacturers see Kaman, Motion and Applied as additional national chains to authorize (and hence further saturate the market under the guise of “supporting” a national chain?) Will other independents seek ID / PT acquisitions? Does acquiring complementary companies makes sense? Will distributors benefit from more acquirers?