Rexel Acquisitions Net A “Fortune”

Over the past year or so Rexel corporate has made 14 acquisitions to drive their growth strategy, thereby consolidating much of the revenue in the electrical distribution industry. These acquisitions have been worldwide – Canada, UK, Belgium, Brazil, India and China.  But interestingly, none in the U.S. while their largest competitor, Sonepar, has acquired a few leaders in the U.S. (Independent Electric in California and OneSource in California (and remember, California is the 9th largest economy in the world.)

We surmise that Rexel has been targeting these areas due to:

• continued diversification
• seeking growth markets (given that Europe, especially southern Europe, isn’t a growth market)
• seeking to diversify assets into non euro currencies

And, Rexel has just recently announced a $300M bond offering with the funds to be used for “general corporate expenses and funding of bolt-on acquisitions”

We find it interesting that Rexel hasn’t been able to find an opportunity to acquire a quality electrical distributor in the U.S., Perhaps Rexel has some reticence with its management team or distributors are choosing not to “trust” Rexel with their employees?

Interestingly, according to our sources, Rexel was either not a serious consideration, or a non-option, in recent U.S. acquisitions. Some of this, we understand, is due to perceptions about the U.S. operation.

We also understand that Rexel has closed 6-10 locations in the U.S. so far this year.  And, when you compare growth rates of national chains such as WESCO, Graybar and even HD Supply (although they don’t break out electrical numbers), Rexel’s U.S. growth rate significantly lags (and lags that of most quality independent distributors). And conversations with manufacturers are not overly positive regarding the direction of Rexel.  And competing distributors relish, in most areas, the opportunity to compete against Rexel.

It’s a challenging conundrum for the Rexel management in the U.S., and presumably in Paris.

And then, Fortune names Rexel the 4th most admired diversified wholesaler (up from #10 the prior year), in the world.  While Chris Hartmann tried to take some credit in the U.S. stating ““This acknowledgement from FORTUNE, one of the most respected business media outlets in the country, confirms that Rexel’s unwavering commitment to our customers and our employees is making a difference” the only rationale reason for the ranking can be the analyst voting as few distributors are publicly traded (and Rexel still has private equity ownership involved).  Makes one wonder about Fortune’s scoring process.

If you were Rexel, what would you do with the U.S. operation, recognizing there is no way that they would divest of the division – it represents a significant percentage of corporate revenues.

And, on a slightly different, but complementary, subject …

• Given Rexel’s revenue in the U.S. (Rexel and Gexpro) and with more monies to make acquisitions, and
• Sonepar has grown into either the top or a top 4 U.S. distributor based upon revenues, and
• That Sonepar plans to double its size within ten years (to $34B by 2021)

how much of the U.S. electrical distribution market will be controlled by French entities? Should this be a concern for distribution sellers? A motivator for some acquirers? Or should it make any difference?