Fastener industry copes with consolidation
By Staff -- Industrial Distribution, 4/1/1998
Newton, Mass. -- Suddenly, the fastener industry is the darling of Wall Street. While the recent roll-up of five fastener distributors into the newly formed Pentacon is still the talk of the town, consolidation is happening fast and furious within the industry. Pentacon started trading on the New York Stock Exchange on March 9, raising approximately $39.3 million, most of which is earmarked for future acquisitions.Meanwhile, it was expected that Indianapolis, Ind.-based Service Supply Co., one of the largest independent fastener houses with 1996 sales of $75 million, would be purchased by The Wurth Group by April 1. Over the last two years, Wurth, the world's largest fastener distributor, has also purchased Revcar Fasteners, Snider Bolt & Screw, Eastern Fastener, and Adams Nut & Bolt. Most recently, Eastern Fastener Corp. announced the acquisition of Interstate Bolt & Nut.
Throw in Park-Ohio's purchase of Arden Fasteners last year, and Bamal Fastener Corp.'s recent buyout of Cronin Fastener, Inc., and the action in the fastener industry has been hotter than any other distribution sector. The activity has been so heated that the Western Assn. of Fastener Distributors devoted a major portion of its Spring Conference to consolidation at its meeting in Tucson, Ariz. last month.
What's driving the consolidation? For starters, the fastener industry is immensely fragmented. According to Pentacon's prospectus, there are more than 1,900 fastener distributors in the United States alone, none of which have more than a five percent market share. In fact, the study identified 1,523 privately held fastener houses with sales of less than $2 million annually. There are only three with sales of $100 million or more. So, the industry is ripe for consolidation. Aside from Pentacon, which is already getting solicitations from interested parties and should begin acquiring in the fall, The Wurth Group, Distribution Dynamics, Inc., and Integrated Material Systems, Inc. have all been active acquirers.
"The whole industry is ripe for consolidation and roll-ups. I think we'll see much more of that in the next three to five years," says Mikel Miller, president of Bamal Fasteners, who notes he was approached by Pentacon. "The people selling are either at an age where they want to get out and convert equity into liquidity, or feel they can't grow because the marketplace is becoming too competitive."
Barbara Gordon-Cohen, industrial distribution research analyst at Schroders in New York, says the trend allows distributors to remain competitive by functioning in new markets, and by raising cash.
"These small distributors don't have the capital they need and they aren't going to get investor attention by being $30 million distributors," says Gordon-Cohen.
The landscape of the fastener industry will continue to change. Gordon-Cohen notes that the five firms that make up Pentacon have experienced combined annual growth of 17.7 percent. It's that kind of growth that companies like The Wurth Group, and others, are interested in.
"We are looking for market share in North America, so we are acquiring average-sized, well-managed fastener distributors to obtain a piece of the North American pie," says Ben Tabor, director of mergers and acquisitions for Germany-based Wurth, a $4 billion corporation. "There are a number of dogs out there, but if you acquire well-managed companies they are very good investments."
Investors aren't barking about that.
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