Rockwell Inspired – Divestiture or Growth Strategy?

WESCO’s recent sale of its Sheboygan Falls, WI branch and Rexel’s recent sale of two locations in northeastern Pennsylvania and upstate New York mark the first time in many people’s memory that national chains sold anything, let alone a branch. The commonality – all three are Rockwell locations.

Werner Acquires from EESCO / WESCO

Earlier this week it was announced that Werner Electric Supply acquired the Sheboygan Falls, WI branch of EESCO, which is the Rockwell division of WESCO. This means the location was a Rockwell branch / APR. According to a listing by Dun & Bradstreet, the branch, at one point, was staffed with fourteen people, which probably means it had less than $10 million in revenue (and this is a guesstimate). The location probably had a heavy Rockwell mix.

Werner is Wisconsin’s leading independent distributor and a strong Rockwell distributor based in Appleton, WI.

Given that Werner has a location in Sheboygan and Sheboygan Falls is only 4 miles away, presumably there will be location consolidation.

A growth opportunity for Werner. A divestiture of a location that was not “strategic” and/or could affordably be resourced by WESCO.

Schaedler Acquires from Rexel

As reported earlier this month, Schaedler YESCO acquired two Rockwell locations from Rexel.  These locations were in Pittson, PA and Johnson City, NY.

According to a press release by Schaedler YESCO, Farrah Mittel, president, said ““Expanding markets is a key part of growth strategy, so we are very pleased to have these locations join our roster and to expand our Rockwell service area to Northeast PA and into the Johnson City market. The addition of these two locations really enhances our service territory and will help us create new opportunities.”

Why are National Chains Divesting of Rockwell locations?

This is a new phenomenon but one that has been rumored for many years.

Many Rockwell distributors know that Rockwell has desired fewer distributors and encourages consolidation of APRs, ideally by contiguous distributors. Regularly Rockwell “reauthorizes” its distributors and continuously raises the bar on how its distributors should be resourced and perform. Reportedly the current process may require distributors to continue to add, or redeploy, personnel as specialists as the company continues for mutual growth with its distributors. Growth areas relate to products and services as the company continues to its vision of The Connected Enterprise, which drives Smart manufacturing is the gateway to digital transformation.

The other investment that Rockwell is seeking from its distributors is a more robust digital strategy. This relates to eCommerce, eMarketing / digital marketing and connectedness with Rockwell systems.

According to some, the investment level could be significant. And this may be why these “orphan APRs” (our term) from Rexel and EESCO / WESCO may be available. Most likely they would be available to whatever distributors are contiguous, hence this could be an opportunity for independent distributors and most likely encouraged by Rockwell.

Here’s information on EESCO locations so “orphans” can be identified … Minnesota, Michigan, perhaps South Carolina) and for Rexel’s Rockwell locations (there are some “spots”).

So, it’s possible that other branch-specific divestitures could occur, benefiting some independents. Mapping would need to be done to determine the contiguous branches to determine if Sonepar and CED, two large national chains with significant Rockwell presence, could be beneficiaries from other national chains.

Will Reauthorization Drive Larger Acquisitions?

Some have also commented that a combination of COVID, and the fact that it is not a short-term event, and the necessary investments to support and grow the Rockwell business, may drive independent Rockwell distributors to make decisions.

While this could result in mergers or “independent to independent” acquisitions, rarely is this encouraged unless there is geographic continuity. “Leaping” locations has occurred such as when McNaughton McKay purchased The Reynolds Company or Kendall purchased Roden Electric. The larger the company the greater likelihood that CED or Sonepar could be the beneficiary (and could afford the acquisition as well as scale to handle the Rockwell desired investments as the technology investment can be leveraged over a larger volume, minimizing some of the investment level needed).

And the outlook for COVID could affect ownership viewpoint given that many expect a challenging / slow growth market for the next 18-24 months in many sectors.

While Rockwell may not have “whispered” in anyone’s ear, it’s very possible that the divestiture movement could be inspired by Rockwell’s actions and it could lead to an accelerated acquisition market between now and the end of the year.

Congratulations to Schaedler YESCO and Werner Electric Supply for being able to capitalize on this growth opportunity.

Update

Yesterday’s post generated some calls and jogged some memories that reinforced the trend:

• In 2016 Buckles Smith acquired two CED Rockwell locations. One was under the CED brand and the other was under the Royal banner.
• Last June Mc-Naughton McKay acquired 4 locations in Georgia that, based upon some research of their staff and viewing their LinkedIn profiles infer that these locations were CED just prior to the press release date. Coincidental?
• Kendall Electric operates an “orphan” in Jackson, Tennessee. While Kendall is in eastern Tennessee, they either need to fill in or Jackson is “degrees of separation.”
• Rexel has 2 locations in the Buffalo area that would be considered “orphans” unless they are “rescued” by an acquisition of a distributor that separates them from other Rexel locations.
• Reportedly Sonepar has some orphans (which locally distributors probably know). Also, the old Branch Electric had Rockwell in Maryland and the Boston area which could be defined as large orphans but could be turned into something else with acquisitions.

It appears, at least from this map, that CED has cleaned-up much of its “orphans”. And knowing CED, they are always in the acquisition market so could add to their Industrial Solutions Network.