Consolidators cross the Atlantic

Hagemeyer/Cameron & Barkley deal could raise European interest in the U.S. market

By -- Industrial Distribution, 8/1/2000

Charleston, s.c.-The buying frenzy that shook the industry over a year ago could be heating up again. Only this time, it may have a distinct international flair.

Hagemeyer N.V.'s intention to acquire Cameron & Barkley, announced earlier this summer, was big news on several fronts. First, it marked the third major move into the U.S. MRO market for the Netherlands-based distribution company. It also confirmed Cameron & Barkley's plan to become an even bigger player here at home.

At the same time, the announcement called attention to the growing interest among European firms in capturing a piece of the fragmented U.S. market. It also signified a potential new wave of consolidation and left lingering questions about who may be next on the auction block.

At press time, the Hagemeyer acquisition was still pending a vote by Cameron & Barkley's 2,000-plus employee owners. If the acquisition is approved, CamBar will become a wholly-owned subsidiary of Hagemeyer's U.S. division, Hagemeyer P.P.S. North America. A vote was expected by the end of August. Terms of the deal were not disclosed.

Cameron & Barkley initiated talks with Hagemeyer after the Dutch company's acquisitions of Vallen Corp. and Tristate Electrical & Electronics Supply late last year. CamBar president and CEO Jim Warren said his company was attracted to the growth opportunities a partnership with Hagemeyer could provide-specifically the ability to better support customers across the country and follow some of them to locations throughout the world.

Capital backing from Hagemeyer would also help Cameron & Barkely continue its expansion plans. The firm made three acquisitions in the last year-and-a-half, increasing its coverage mainly in the Southeast and Midwest, its primary territories.

At the same time, Cameron & Barkley is a good fit for Hagemeyer's North American expansion plans. The firm made inroads to the U.S. safety and electrical markets with the Vallen and Tristate acquisitions last year, but CamBar would add new product lines and value-added services-such as integrated supply-to the mix.

"It's certainly a new expertise and certainly a very much broader approach to industrial distribution than we have [now]," said David Gundling, CEO of Hagemeyer P.P.S. North America. Broadening the company's product and service offering is a strategy Hagemeyer wants to pursue throughout its operations, Gundling added. Hagemeyer's electrical distribution business is one of the largest in Europe.

Both firms are interested in continued North American expansion, whether or not the deal goes through, Warren said. He added that he does not expect any layoffs or consolidation of locations if the acquisition is approved. Gundling also said he anticipates no major changes to CamBar's corporate structure.

"We have no real idea of radical changes [at Cameron & Barkley]," Gundling said shortly after the deal was announced in June. "We've got great respect for their expertise and experience in the market."

Meanwhile, industry watchers are keeping a close eye on the deal. It was rumored earlier this year that CamBar was close to a major announcement, but the buzz was that CamBar would be doing the buying.

Gary Buffington, executive director of the Industrial Distribution Assn., said the acquisition makes "total sense" for Cameron & Barkley. First and foremost, it fits the firm's strategic objective to grow significantly into a multi-billion dollar distributor.

"I think that type of an alliance is a way that they will achieve their strategic objective much more quickly," Buffington said.

Beyond that, he said the proposal is good news for the entire industry. With all the recent talk about the distributor's role being diminished-and perhaps even eliminated-this deal serves as a ringing endorsement for the role of the traditional distributor, Buffington said.

"It's a tremendous confirmation of that role in the marketplace and confidence in its future role," Buffington said. "A company [Hagemeyer's] size doesn't buy a company in an industry that it expects to no longer fulfill a [need]."

The acquisition also points to the interest of European companies in the North American market. The depressed stock prices of publicly held distributorships and low valuations throughout the industrial sector make the U.S. market an attractive one to foreign acquirers, according to many analysts. If such conditions continue, the Hagemeyer/CamBar deal could signify a new consolidation trend. And that's something analysts at CIBC World Markets are watching carefully, says Rob Lubin, CIBC's director, investment banking.

"There's definitely a trend here," says Lubin, pointing to European consolidators like Rexel and Sonepar, French electrical distributors moving into the U.S. market. "Based on the prices and valuations that the distribution sector is getting right now, it's certainly a great opportunity for a strategic buy."

Hagemeyer's strategy shift-made clear by this deal and by the acquisition of Vallen, the safety products distributor-may also fuel this new consolidation fire, according to some analysts. Essentially, Hagemeyer's move may cause other European consolidators to diversify their product and service offerings more quickly.

"Hagemeyer and CamBar bring a number of lines of trade to bear," said Holden Lewis, also an analyst with CIBC World Markets. "Others may follow suit with respect to that."

To be sure, many European companies have already begun to cross the Atlantic in search of U.S. distributors. Germany's Würth Group is one example, making several acquisitions in the fastener industry over the last five years. Britain's Farnell Electronics is another. That company merged with U.S.-based Premier Industrial Corp. in 1996 to form one of the world's largest electronics distributors-Premier Farnell plc, whose Industrial Products Division had sales of $245 million last year.

Lewis and other analysts say Sonepar, the French electrical distributorship, is one to watch as this new consolidation trend unfolds. Sonepar Distribution USA, the firm's U.S. division, added several electrical distributorships to its ranks this year, mainly on the East Coast. Whether Sonepar will follow Hagemeyer's lead into other lines of trade, however, is yet to be seen.

Regardless, many industry watchers say the movement by companies in other distribution sectors-like electronics and electrical products-could trigger more activity in the general MRO sector.

"In other distribution industries, European companies have become quite active," Buffington said. "So, it could well happen here."

Web Manager Ken Brack and Associate Editor Sheri Qualters contributed to this report.