First PHCP roll-up launched, led by former JLK exec Mussog
By Industrial Distribution Staff -- Industrial Distribution, 5/1/1999
Chicago--Four well-known distributors have formed Supply America Group, Inc., the first roll-up in the $50 billion plumbing, heating, cooling and piping industry. The firm hopes to become a leading consolidator and is being led by former JLK Direct Distribution Inc. executive Michael Mussog.The founding companies include Coburn Supply Co., Inc. of Beaumont, Texas; D&C Plumbing & Heating Supply of Ann Arbor, Mich.; Davis & Warshow of Maspeth, N.Y.; and Kelly's Pipe & Supply of Las Vegas.
Mussog, the former chief financial officer at JLK Direct, is the chief executive officer of Supply America Group. John Thompson, formerly vice president of sales and marketing at Cerro Copper and president of U.S. Supply in Kansas City, Mo., is the new group's president.
Mussog told Supply House Times, another Cahners publication, that he and Thompson are talking to several other companies about joining the organization. He expects to announce commitments from them by the end of June.
The companies signed letters of intent to merge in March, and the deal was expected to close with an infusion of investment capital. Supply America Group expects to buy all the stock of the founding companies, and the active management of those firms. Investors led by Citadel Investment Group will own Supply America.
New capital will enable the founders to invest in new information systems, build infrastructure for Internet-based distribution and acquire other PHCP distributors.
The individual firms will continue to do business under their own names. All of the four companies are members of Embassy Group, Ltd., the largest marketing group in the plumbing distribution business. Mussog estimates their combined annual sales at $250-$300 million.
"We've had companies from outside Embassy approach us, as well," says Mussog. "We are not limiting participation to Embassy members."
Mussog adds that he and Thompson are looking into the group's options for capital to fuel its planned growth. "Our preference is to access the public equity markets," he says. "Given market conditions and the final composition of the group, however, we could change that." He also notes that the companies already committed are all in strong financial positions.
Brad Shoen, president of Kelly's Pipe & Supply, says that independent plumbing distributors have been concerned about consolidation for years and have discussed possible strategies to safeguard their businesses.
"This opportunity is a nice alternative to 'selling out,' " says Shoen. "The wholesalers I've talked to agree that we all are good at running our own businesses but know nothing about the investor community. Having a financial sponsor and architect, which is the function that Citadel Investment Group is performing for us, answered a lot of the questions about how we could do this."
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