When Industrial Distribution heard about the sale of HD Supply's IPVF Division to a much smaller distribution company named Shale-Inland, we were curious: what made this transaction possible? What went on behind the scenes to make this transfer happen? We spoke with both Joe DeAngelo, CEO of HD Supply, and Craig T. Bouchard, CEO of Shale-Inland, to get their scoop on the deal. Here is ID's brief interview with Joe DeAngelo, and below it you will find an in-depth discussion with Craig Bouchard on what this transaction means for Shale-Inland going forward.
ID: What prompted HD Supply to consider selling their IPVF business to Shale-Inland?
Joe DeAngelo: We initiated a strategic evaluation process after we had been approached by multiple potential future owners with core business in IPVF. We determined that divesting our Industrial PVF (IPVF) business is in the best interests of our company, and the best interests of our HD Supply IPVF associates, as HD Supply continues strengthening our industry-leading businesses.
ID: HD Supply has an extensive and very diverse portfolio of products and services: why does the IPVF no longer fit in to this picture?
JD: IPVF business serves a very specific market, offering highly specialized products. Aligning IPVF with an owner focused solely on their business model will allow them to capitalize on the momentum they have built.
ID: HD Supply just had a wonderful year-end financials result: why sell the IVPF now?
JD: We determined that divesting the IPFV businesses, at this time, is in the best interests of HD Supply as we seek to continue to strength our industry-leading businesses, which include:
HD Supply Facilities Maintenance - A leading national distributor of maintenance, repair and operations (MRO) products to owners and managers of multifamily, hospitality, educational, industrial and commercial properties; healthcare providers; and municipal and government facilities.
- 150,000 SKUs (16 Product Categories)
- 240,000+ Active Customers
- 4,000 Associates (~750 Field, National Account Reps.)
HD Supply Waterworks - The leading distributor of pipes, valves, fittings and related products to public and private utilities as well as underground contractors servicing municipal, residential, and commercial markets.
- 300,000 SKUs
- 45,000 Customers
- 2,300 Associates (850 Outside and Inside Sales Associates)
HD Supply Utilities and Electrical – Industry leader, innovator and solutions provider in the utilities and electrical distribution space, providing customers in the U.S. and Canada with the industry’s most comprehensive products, solutions, technologies and expertise for distribution, transmission and generation of electric power and new construction end-markets.
- 200,000 SKUs
- 8,500 Customers
- 1,600 Associates (500 Outside and Inside Salespersons)
HD Supply White Cap - The leading national distributor of specialty hardware, tools, materials and safety products for medium and large contractors.
- 53,000 Customers
- 2,600 Associates (460+ Outside Sales, 300+ Inside Sales, and 140 Counter Sales)
ID: Is this an indication of a new direction for HD Supply?
JD: Our goals remain constant – provide best-in-class customer service, help our customers deliver new and better solutions every day and deliver on our promises. This includes having an uncompromised focus on providing customers new and improved products and innovative solutions that maximize performance and efficiency.
We will also continue to invest in the company to drive organic growth and continue to review potential acquisitions that will fuel growth in adjacent verticals and product categories, and expand our geographic footprint.
ID: Will employees and their positions in this division be transferred to Shale-Inland along with the sale?
JD: IPVF employees, including the leadership team, will remain with the business following completion of the sale.
ID: As I am sure you will be following its success in the next year or so, what are you looking forward to most as the IPVF business moves forward in this direction with Shale-Inland?
JD: Shale-Inland’s market focus will provide additional opportunities to accelerate future growth for the IPVF business and its employees.
Craig T. Bouchard, CEO of Shale-Inland
Industrial Distribution's interview with Craig Bouchard:
ID: Shale-Inland purchasing HD Supply’s IPVF Division and moving into a partnership with a private equity firm is a big step. Why now? And what should we expect to see in the next year in terms of growth because of this announcement?
Craig Bouchard: Shale-Inland made an offer to buy this company, acquired the capital necessary, and we basically created a new company containing both Shale-Inland and the new IPVF business housed under our private equity investors, TowerBrook Capital Partners, LLC., and The Stephens Group, LLC.
In terms of growth going forward: Shale-Inland is in the distribution of stainless steel, aluminum and carbon steel. We are a service center company. We also are a stamping and fabricating company making parts for big OEM manufacturers like Ford, Tower Automotive and All-Clad. What we are acquiring is a company that makes pipes, valves and fittings and the majority of that is stainless steel, more than half of the products, actually. This diversifies our stainless steel product line across the energy patch which is the pipe, valve, and fitting component. Today, we are big in the appliance sector; all the big names use our metal. We are also big in the food processing and transportation sectors. The combination of adding energy to food processing and appliances is a great diversification across a large customer base and across geography and across products. I think there will be a very strong organic growth rate in our company because Shale-Inland itself this last year grew our revenues over 100%. We are growing very fast. IPVF has very high profit margins and a very stable source of revenues and profits over the years. In fact, they have 37 years of consecutive profitability. We are combining a very fast growing company with a very profitable, and consistently profitable, company and diversifying across this very large customer base. The combination of all these factors makes for very large organic growth. It’s going to be great. Now we plan to focus on putting the companies together, which will take at least six months to fully integrate them. Integration will involve IT, sales, and making the best use of our footprint in the facilities we are acquiring because there are so many of them. It’s a very complex task to get both companies really fitting together and working well together. That will take at least six months, and it could take up to a year. After we have reached full integration, then we will go back on the acquisition trail because that is my specialty. Both in organic growth and new acquisitions we will be aggressive in the future.
ID: Your company bio mentions that you “pursue world-class customers and provide them with service that engenders fierce loyalty.” How will this acquisition of HD Supply’s IPVF business fit into this methodology?
CB: We sell to Fortune 1000 or 1500 companies, generally pretty large or middle-market companies. There are a bunch of trends going on in that community. One trend is that there is a great optimization of supply chain happening. The typical company wants fewer suppliers. Those who are going to survive as a supplier to them are going to be the ones that offer the most value to them. If you don’t, then you won’t fit into this optimization trend. The reasons are obvious. The recession has put a big cost dent in everybody. When revenues are difficult, you work on your cost structure as hard as you can.
There is one more trend specifically for an OEM manufacturer. If you go to their plant, you’ll often see that they are assembling their piece of equipment or their product there, which means they have assembly people, painting lines, they have people who do some steel work and make some of their parts themselves. This is typical for Whirlpool or GE or whoever. They still do some of what I call “old-fashioned” steel stuff. To be creative and to get as many products out the door as physically possible, they are doing less old-steel stuff. Our stamping and fabricating operation is set up so we can go in and say that we will give you the steel you want, or we will give you your pipes and valves for whatever you are involved in, OR if you are still doing old-steel stuff, we will come in and take that off of your hands and we’ll make it for you. That will create space and more working capital for you to expand your products and get them out your door. We tend to try to create a lot of value for the customer. When you walk in and you provide the most value, that customer becomes very loyal to you, and when they become very loyal to you, then through thick and thin you do okay over the business cycle. IVPF has three thousand or thirty-four hundred customers in the U.S., and over six thousand customers globally. If you are in distribution, the customer is magic. They are the whole thing. So being able to acquire more than 6,000 customers into our distribution base is like a miracle. We are so happy. It’s worth all the work.
ID:Is this merge with HD’s IVP business taking on a more global outlook for Shale-Inland? How globally involved were you before?
CB: YES – of course. Today, we buy steel from foreign countries, but we don’t sell anything outside of North America. IPVF has sales on four continents. This definitely extends us into the global marketplaces in a very good way with profit margins and products that are of very high quality. That is a very important aspect of this deal.
ID: How will this merger enhance your supply chain management? Faster delivery times? More available products?
CB: It’s a multi-tiered answer. First of all, IPVF has thirty-nine facilities in North America and we had eight, so we now have a total of forty-seven. When you deal with the big companies and you are delivering products, logistics is very important. If you truck a product more than 250 miles, it becomes a little less economical. If you truck more than 500 miles, you are dead in a competitive marketplace If you are going to service the big customers, you need to be located close to them. With 47 facilities in North America, we are close to them. It’s almost that simple. This will accelerate our growth, optimizing this footprint. We will now cross-sell. Shale-Inland sells sheet metal products and IPVF sells steel plate products and pipe valves and fittings. We will have 175 sales people nationally selling sheet, plate and PVF. That kind of cross-selling power is really tremendous.
ID: What are you looking forward to most as Shale-Inland moves forward in this direction?
CB: My objective, speaking as the CEO, is to make my shareholder’s happy. I’m looking forward to accomplishing that. I want to make our customers happy and our employees happy. Anything that contributes to one of the three makes me smile.
One of the greatest things in this transaction is the large management team that has been profitable every month for 37 years. They had 448 consecutive months of profitability. It’s spectacular. The greatest thing in this acquisition for us is having acquired this management team.