Acquisition Opportunities Abound in Changing Market

We’ve had conversations with several analysts recently who have inquired about the electrical distribution industry. The conversations frequently turn to “what would happen to distributors if the economy slowed down?” While there are obvious revenue and profit implications, we discussed future consolidation, which got us to think “could a slowdown accelerate distributor consolidation out of a ‘need to sell’ vs. ‘want to sell’mentality?”

Food for thought…

• • With the national residential slowdown, and most national chains having limited exposure to this market, smaller independents could be most at risk, generating increased opportunities for CED and USESI as well as larger regional players in growing markets (Dealers, Mayer, Colonial, Granite City, NESCO, Springfield, Walters, Independent Electric (CA), Summit or OneSource)?

• • With multiple capital resources, could WESCO view an opportunity to acquire other Eaton-oriented, commercially and industrially-focused distributors in marketplaces where it has nominal presence (or as a way to reduce competition)? Presumably they would have Eaton’s blessing, and this could further enhance an Eaton national chain presence.

• • Could Graybar be a consolidator of Square D distributors? (Yes, they haven’t made a significant acquisition since Presco, but things could change!)

• • Is Rexel’s strategy to be diversified and make financial acquisitions or are there market segment plays to eventually be rolled out or are they primarily focused on market share?

• • Should large independents focus on acquisitions where there are supplier and market segment synergies (beyond Rockwell distributors)?
• Will strong independents who have managed their business well, improved profitability, and have strong balance sheets, seek expansion opportunities to become dominant in their regions?

Consider the implications for manufacturers, especially if a greater percentage of the industry is consolidated with 50 distributors (nationals and strong independents) who cover multiple marketplaces and need consistency in “support” within their markets. And if this happened, where does it leave GE and Siemens?)

Opportunities exist for progressive organizations to prosper as niches are available within customer segments and emerging product categories (LED, fire alarm, security, alternative energy) as well as strategic acquisitions. The key with making acquisitions work is prudent streamlining, treating the people well and brand building beyond marketing communications.

In changing times, opportunities (choices) are always present.