The Beginning of M&A?

Everyone has wondered why there hasn’t been more acquisitions in the industry over the past couple of years, and the question was asked again at the recent NAED SouthCentral conference.  In discussions with companies that one would characterize as “acquirers”, the feedback is that some potential sellers are thinking that since the economy has stabilized / improved (depending upon your point of view), that their business should be valued higher, perhaps as it was in 2007.  The challenge is that does not take into account the recent performance of the business or the fact that the company may not have invested to prepare itself for the future.

But while the market may be unrealistic, perhaps some acquisition is beginning…

Elliott Electric, based in eastern Texas, has expanded aggressively over the past few years, opening many new branches and expanding into new states. And surprisingly they are now growing through acquisition.  Elliott acquired Key Electric this week, and with the deal having closed quickly, that infers a cash deal and/or that IES, the national electrical contractor, wanted out of Key quickly.

Both Elliott and Key are IMARK members, Key having entered through the IMARK and EDN/Equity merger.

Key, as many know, was an electrical distributor owned by the contractor.  While it focused on the residential market (single and multi-family), it also did serve the needs of some of the IES contractors in other states.  With the electrical market down from its 2007 heights, and some personnel changes over the years, IES decided that Key was no longer a core asset (according to IES’ press release.)

We’re also hearing of other potential ownership changes in the Southwest marketplace, including some branch closings.  The Dallas marketplace, and other petrochem markets, are performing better than most other locations, so perhaps distributors are thinking “this is a good time to get out” and/or they have no, or unsatisfactory, succession plans.  In the words of one industry executive whose company is involved, and affected, by acquisitions, “this could be the beginning of the dominos following.”