UPDATE: Analysts on IDG’s merger with Platinum Equity
Industrial Distribution staff -- Industrial Distribution, 2/22/2008 8:20:00 AM
Analysts told INDUSTRIAL DISTRIBUTION that Industrial Distribution Group Inc.'s agreement to be acquired by an affiliate of Platinum Equity Advisors LLC creates synergies between the Atlanta-based MRO distributor's integrated supply business and another Platinum holding, Strategic Distribution Inc.The $113 million deal, which would take IDG private, unites two companies that specialize in integrated supply, which comprises about 60 percent of IDG’s total revenues through its Flexible Procurement Solutions division.
“The acquisition makes a lot of sense,” said Brent Grover, managing partner of Evergreen Consulting in Cleveland. “Putting IDG together with Strategic Distribution is very sensible and there’s a great deal of potential there, both to benefit customers and suppliers. The companies combined should be a good deal for these guys. The Platinum Equity people are very smart and if they don’t have the right people, they’ll find them and put them in charge.”
IDG, which ranked 19th on INDUSTRIAL DISTRIBUTION’s 2007 Big 50 list of distributors on 2006 sales of $547.9 million, was formed in 1997 through a roll-up of nine broad-line distributors and then taken public. Over time, it acquired 26 more distributorships, creating an integration challenge for CEO Charles Lingenfelter and the company’s senior leadership.
Jonathan Skelly of PCE Investment Bankers in Winter Park, Fla., said synergies involved in uniting Strategic Distribution and IDG likely helped seal the deal.
“If Platinum didn’t already own Strategic Distribution, in my opinion they might not have done the deal,” Skelly said. “What’s neat about Platinum is that they’re a private equity buyer but they have some synergies here. A typical private equity company doesn’t have other companies in the same space. … They’re not quite a strategic buyer, but they’re somewhere between a private equity buyer and a strategic buyer.”
And the advantages of being a publicly traded company likely weren’t enough to outweigh the disadvantages for a company of IDG’s size, he added.
“From the outside looking in, my view would be that that’s really the reason they decided to review strategic alternatives and take the company private,” Skelly said. “When you’re a public company and you have to make some tough decisions or you have some heavy lifting to do in your integration, it’s obviously easier to do that if you don’t have quarterly earnings expectations to meet. … I’ve got to imagine that they’re spending several million a year complying with Sarbanes-Oxley and just being a public company.”
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