Wilmar deal could set precedent

By Jeffrey Germanotta -- Industrial Distribution, 2/1/2000

With historically low equity valuations for so many distributors, discussions at the board of director's level often focus on strategic alternatives to enhance shareholder wealth. One of the options is to take a publicly owned firm private, like the recent announcement from Wilmar Industries.

Last month, Wilmar Industries announced a definitive merger agreement with an investment group led by Parthenon Capital. Boston-based Parthenon, and its associates, has offered a buyout price of $18.25 per share, representing a 22 percent premium to the $14.94 pre buy-out price. This implies a valuation approximating 9 times enterprise value to trailing earnings before interest, taxes, depreciation and amortization, or almost 15 times our 2000 EPS estimate.

Wilmar is a leading supplier of repair and maintenance products serving apartment housing, lodging and institutional facilities with plumbing, electrical, HVAC, hardware and other related products and services. We believe Parthenon's objective is to use Wilmar as an initial platform from which to build a larger distribution organization through internal growth and acquisitions. This suggests expanding the line of products offered; entering new, but complementary end markets; additional geographic expansion; and new channel strategies, such as electronic commerce.

Alternatives to the go-private option may include investing surplus cash or debt capacity into new growth initiatives and acquisitions; divesting underperforming lines of business or assets; pursuing strategies to improve productivity and operating efficiency; undertaking a share repurchase program; or seeking a merger partner.

We suspect there are numerous industrial distributors facing similar strategic issues, such as Applied Industrial Technologies, Barnes Group, DXP Enterprises, Hughes Supply, Industrial Distribution Group, JLK Direct, Questron Technology, Strategic Distribution, SunSource, and Whitecap Industries. In fact, Whitecap announced a deal similar to Wilmar's last summer, but the buyout has yet to close.

Jeffrey Germanotta is senior vice president of equity research at R.W. Baird & Co. He can be reached at 414-765-3572, or e-mailed at jgermanotta@rwbaird.com.

DISTRIBUTORS

Company 1/14 close Year change 52 wk. High/Low

Applied Industrial Tech APZ 15.75 -5.3 19.06 11.13

Airgas ARG 8.94 -5.9 14.00 7.88

Barnes Group B 15.63 -4.2 29.00 15.00

DXP Enterprises DXPE 2.19 -10.3 10.00 0.75

Fastenal FAST 44.94 0.0 60.56 33.63

Genuine Parts Co. GPC 24.75 -0.3 35.75 22.25

Grainger (W W) GWW 55.63 16.3 58.13 36.88

Hughes Supply HUG 20.50 -4.9 30.00 17.88

Industrial Distr. Group IDG 3.50 7.7 8.13 2.25

JLK Direct Distr. JLK 10.38 0.6 13.50 7.00

Kaman Corp. KAMNA 10.50 -18.4 16.00 10.06

Lawson Products LAWS 24.50 5.9 28.06 20.38

MSC Industrial Direct MSM 18.38 38.7 26.25 7.50

Noland Co. NOLD 17.13 -4.2 28.50 16.50

Pentacon JIT 3.75 20.0 6.19 2.06

Premier Farnell PFP 14.88 7.2 15.13 5.13

Questron Technology QUST 11.13 72.8 11.81 2.75

Sunsource SDP 5.75 35.3 18.56 3.44

Strategic Distr. STRD 1.94 34.8 3.25 1.13

Vallen Corp. VALN 24.63 0.0 26.00 13.38

WESCO International WCC 8.44 -4.9 22.88 5.50

White Cap Industries WHCP 15.78 5.2 18.00 9.50

DISTRIBUTION TECHNOLOGY

Company 1/14 close Year change 52 wk. High/Low

Datastream Systems DSTM 21.19 -13.7 25.00 6.63

Edwards J D & Co. JDEC 40.63 36.0 43.00 10.88

Harbinger Corp. HRBC 25.25 -20.6 34.00 5.06

Prophet 21 PXXI 10.50 6.3 14.00 5.25

Sterling Commerce SE 30.81 -9.4 44.94 17.94

MANUFACTURERS

Company 1/14 close Year change 52 wk. High/Low

Baldor Electric Corp. BEZ 18.50 2.1 21.69 17.00

Black & Decker BDK 47.25 -9.6 64.63 41.00

Columbus Mckinnon CMCO 15.50 53.1 30.00 9.75

Cooper Industries CBE 43.19 6.8 56.75 38.31

Danaher Corp. DHR 45.38 -6.0 69.00 42.75

Dana Corp. DCN 30.19 0.8 54.06 26.00

Emerson Electric Co. EMR 60.94 6.2 71.44 51.44

Fairchild Corp. FA 9.13 0.7 15.75 6.81

Federal-Mogul Corp. FMO 17.88 -11.2 65.25 16.88

Illinois Tool Works ITW 67.50 -0.1 82.00 58.13

Ingersoll-Rand Co. IR 53.31 -3.2 73.81 44.88

Kennametal KMT 31.81 -5.4 33.88 16.38

Makita Corp. MKTAY 9.44 9.4 12.38 8.38

Milacron MZ 14.88 -3.3 24.50 13.50

3M MMM 99.31 1.5 103.81 69.31

Parker-Hannifin Corp. PH 49.63 -3.3 54.00 29.50

Pentair PNR 35.44 -8.0 49.44 29.88

Starrett (L.S.) Co. SCX 21.50 -4.2 31.69 20.25

Textron TXT 68.88 -10.2 98.00 65.88

Timken TKR 20.00 -2.1 25.81 15.63

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