Growing the Business a Location at a Time

Last week there were industry reports of a couple of acquisitions and some branch openings (and there were probably more that weren’t reported).

Consider …

• CED purchased Davis Wholesale in Hollywood, CA
• Steiner Electric purchase State Electrical in Wisconsin
• Graybar opened 2 locations in Texas and another in Montgomery, AL

And we know other distributors that are looking for “small” acquisitions.

So, we started thinking … why all the activity and started to ask around.

A few thoughts…

• There are some who don’t feel the market, in general, is growing. Yes, there is growth in the energy efficiency / lighting market, but this is not benefiting all distributors. Yes there is growth in some cities. Yes those in the shale and petrochem markets are growing as are those who are residentially-oriented in markets that were significantly down since 2007, but…there are many distributors who are not either in these marketplaces or benefiting from niche markets.  Consider, if the marketing groups are growing at about or less than 4% and some of the national chains are in the 3% or less range, and that there is some price appreciation, there isn’t much organic market growth (or we could say, it’s hard work getting growth!)
• There are others who say that to increase revenues, given essentially a flat market, it requires taking share. To take share either “buy it” or “build it” (new locations).  The mere presence of a new location will generate “some” business and take business away from others.
• And sometimes you open a branch to support a customer or take advantage of opportunities in a market segment (petrochem / shale for example).

• In the case of the Graybar locations in Texas, from what we have heard, there are opportunities that are initiated based upon new business opportunities. Opening a location that is anchored with a large client who commits significant dollars for multiple years does help.
• For Steiner, it appears that it was an opportunity to expand into a geographic area.
• For CED, who already has a strong presence in California, if someone was going to buy Davis, why not CED who operates each of their profit centers (branches) as individual entities, so it wasn’t a case of cannibalizing business from another profit center.