Investment community looks at distribution
By John J Keough -- Industrial Distribution, 9/1/1998
One of the emerging trends in distribution today is that of independent distributors joining under one corporate umbrella and becoming a publicly traded firm. At nearly every major industry meeting, talk centers on what impact this will have on the distribution channel.Last month, for example, ID's cover story focused on the Industrial Distribution Group based in Atlanta, Ga. Just a little over a year ago, nine independent distributors from across the country joined to form IDG, and became a publicly traded company.
Since its inception, IDG has acquired several other distributors, bringing its total to 19.
IDG was the first such group to go public. A Texas-based company is also on the move. Pentacon, a distributor of fasteners and other inventory management services went public in March and now has $45 million in sales and 30 distribution facilities in 14 states. In May, it closed on two major acquisitions.
And this month, a new company,Industrial Distribution Partners, has been formed with the intention of becoming a $1 billion distributor.
This new group expects to acquire one or two distributors in the third quarter of '98 and grow rapidly in 1999. Although a public offering is not pending, an IPO could occur down the road. The company has allocated $250 million of acquisition capital to fuel its growth.
Could other such groups be formed and eventually turned into publicly traded companies? Don't bet against it.
Industrial distribution is considered a good buy, according to the investment community. Companies such as W.W. Grainger, Applied Industrial Technologies, MSC Industrial, Fastenal, Hughes Supply and JLK Direct Distribution are just some of the more well-known publicly traded firms in our business.
In a recent report designed to draw interest in the distribution industry, the Robert W. Baird Co. said it considers distribution to be a neglected investment area.
The company points out that distribution stocks have outperformed broader market indices over the past several years. The company also says that publicly traded wholesalers generate above-average operating margins and attractive returns on invested capital.
It seems ironic that as competition and vendor reduction drive down margins, the investment community has rediscovered distribution. An investment adviser told us that publicly traded distribution companies make solid, steady returns. He pointed out that there will always be a need for products to keep industry up and running. His own portfolio contains some of these stocks.
We're glad that investors are sold on distribution as much as we are.
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