A new breed of acquirer
Billion-dollar international players are making a name for themselves with US-based acquisitions
By John R. Johnson -- Industrial Distribution, 3/1/2000
Over the last year the acquisition landscape has taken on a dramatic change in the distribution sector. Rollups like Industrial Distribution Group and aggressive acquirers like MSC Industrial have taken a back seat while they streamline the many purchases they made prior to 1999.However, acquisitions are still occurring, spurred by a group of companies that are relatively new to the MRO front. Late last year, for example, Netherlands-based N.V. Hagemeyer scooped up Vallen Corp. and Tri-State Electrical & Electronics Supply Co. And Texas Mill Supply, a longtime independent, was purchased by Wilson Industries, Inc., a subsidiary of Smith International, a billion-dollar player in the energy sector. That deal closed in January.
Then, of course, there's the case of Wilmar Industries, a distributor of repair and maintenance products serving apartment housing, lodging and institutional facilities with plumbing, electrical, HVAC, hardware and other products. The firm was purchased and taken private by an investment group led by Parthenon Capital in December.
Boston-based Parthenon and its associates offered $18.25 per share, representing a 22 percent premium to the $14.94 pre buy-out price. Parthenon officials wouldn't talk about the deal, citing a required quiet period before the transaction is closed. However, Jeffrey Germanotta, a vice president at investment firm R.W. Baird, believes that Parthenon's objective is to use Wilmar as an initial platform from which to build a larger distribution organization through internal growth and acquisitions. He believes Wilmar will expand its product line and enter new, but complementary, markets, and expects growth from additional geographic expansion and new channel strategies such as electronic commerce.
Gary Buffington, executive vice president of the Industrial Distribution Assn., isn't surprised by the recent penetration of non-traditional MRO players.
"I think we're going to see more of them. The traditional acquirers in the MRO distribution sector have surfaced, and the unknown names will come from fringe industries like PVF or electrical, and primarily offshore companies," says Buffington. "I see them coming from other commodity areas that are complementary. The whole thing is somewhat driven by integrated supply.
"It makes sense to bring together industrial, electrical and PVF. It's a natural progression as the intra-industry folks have all surfaced and have limitations in terms of their ability to acquire."
Who are the new acquirers? David Gundling, president and CEO of Hagemeyer North America, based in Atlanta, says his firm's U.S. acquisitions are part of a plan to become an even more global company.
"We're viewed as being a player in the international market, but we also recognize we need to have a substantial business in North America, and I think over time that will be our aim," said Gundling. "Vallen is a very well-positioned company that has an excellent management team and one that we felt, quite frankly, we could use as a worldwide platform in our safety business. [Hagemeyer] is really committed to business-to-business distribution in professional products and services, so these two companies very adequately fit that criteria."
As for Wilson Industries and Smith International, Texas Mill president Monte Legro says his firm was a natural target for them. According to Legro, the companies worked together on a variety of projects and shared similar customers. Smith International bought the PVF assets of the former Wallace Co. several years ago, and has been a player in the PVF segment.
"They are in industrial, but their primary presence has been in the energy business," says Legro. "But we've worked with this company for a number of years. This was just the right deal for everybody, and the synergy was remarkable."
Smith International supplies products and services to the oil and gas drilling and production industry. The firm provides drilling fluids and systems, drill bits, and drilling and completion products and services. For the nine months ended last September, revenues were $1.27 billion. The firm's sales were hurt by weak oil prices. Its subsidiary, Wilson, is a supply chain management company providing pipe, valves and fittings and other MRO products to the energy, power and industrial markets.
In a release, John Kennedy, president and chief executive officer of Wilson stated: "Texas Mill has skilled people and an established reputation in the industrial market. The new combined company will offer an extensive range of supply chain solutions and products benefiting our customers in the energy, power and industrial markets."
But the new players don't stop with internationals. Signs show that the investment community is again taking an interest in industrial distribution. Aside form Parthenon, investment group Citigroup Inc. is getting into the mix. Cameron Ashley Building Products Inc. signed a definitive agreement to be acquired by an investment group consisting of CGW Southeast Partners IV LP and Cameron Ashley senior management. CGW, which owned 11 percent of Cameron Ashley before the deal, is an affiliate of Citigroup Inc.'s Citicorp Venture Capital Ltd. unit.
Cameron Ashley, a distributor of building products, said the total purchase price is about $320 million, including the assumption of debt. The firm expects the deal to close in the second quarter.
"I would say there are many international, non-domestic distributors now starting to moving to the U.S." says Adam Fein, principal at Pembroke Consulting, a group that tracks the industry's consolidation climate. "Hagemeyer is a great example, and, on the electrical product side, Sonopar (based in France) is another example of a foreign company looking at opportunities in the U.S. to expand their core business.
"I think the presence of new buyers is something we'll be seeing a lot more of in the next five years."
Talkback
Related Content
Related Content
Sponsored Links
View All Blogs
