Acquisitions are changing the industry landscape, but the reasons for selling a business or remaining independent stay the same.
For all of my 18 years covering the electrical business for Electrical Wholesaling, the pace of industry consolidation has never ceased to astound me. Although dozens of distributors have been acquired during this time, the ramp-up in acquisition activity over the past two years has been remarkable.
During the 1980s, it seemed like All-Phase Electric Supply Co., Benton Harbor, Mich., and Consolidated Electrical Distributors Inc. (CED), Westlake Village, Calif., were buying more distributorships every month. Speculation on their next acquisitions always made for interesting conversation at any industry gathering.
CED is still very active in the acquisition game. In fact, CED purchased the Kinney family's All-Phase Electric Supply last year in an acquisition that offers some insight into M&As in the electrical business. The All-Phase acquisition proved that no matter what the size of a company, willing buyers are ready to make purchases to expand in the U.S. market. And, although CED generally has been regarded as the king of the acquisition game in past years, it now sees much more competition for its acquisition candidates. Competing with CED for acquisitions are international distributors like Hagemeyer N.V., Naarden, Netherlands; Rexel SA, Paris; Sonepar SA, Paris; and Westburne Inc., St. Laurent, Quebec, not to mention U.S.-based companies like Graybar Electric Co., St. Louis; and WESCO International Inc., Pittsburgh.
If you have any doubt about the pace of M&As, check out an article in this month's issue, "Remembering 2000". The chart on page 36 lists the electrical distributors acquired this year through press time. As you can see, 15 companies from EW's 2000 Top 250 listing were acquired or have merged with other companies.
Despite all this change, many companies still choose to remain independent. It's a decision that's without a doubt one of the burning issues in the industry. At the recent NAED Eastern Conference, a panel discussion entitled "Industry Consolidation vs. Independence" pulled attendees from the beaches, ocean and golf courses on a sunny Saturday morning in the Bahamas into a packed meeting room. When that happens, you know the topic is of more than casual interest.
Sitting on the panel were five distributors who have been through that often-agonizing decision. Three of the electrical distributors chose to remain independent; the other two distributors sold their companies to large European distributors. Chuck Steiner, CEO, The Branch Group, Upper Marlboro, Md., sold his company to Rexel earlier this year, and Richard Cooper, president, Cooper Electric Supply Co., Tinton Falls, N.J., sold his family's business to Sonepar in 1999.
Cooper and Steiner spoke of the emotional turmoil they went through when deciding to sell their family businesses. Both distributors finally decided to make the move to ensure their companies would continue to grow at the same rate as in the past and to offer employees the opportunities to grow in their careers with vibrant companies. Steiner said a key factor for him was that despite his company's continued growth at a high single-digit to low double-digit rate, the large offshore distributors such as Rexel, Sonepar and Hagemeyer had access to less-expensive capital for internal expansion and acquisitions. Steiner and Cooper said Rexel and Sonepar employ "hands off" management strategies that allow their managers to continue making the key decisions.
Panelist Laurie Gross, president, Gross Electric Co., Toledo, Ohio, spoke for many smaller independents who focus on a specific market niche to earn a reputation as "top tier" distributor in a local market. Like many distributors, she treasures her family's proud history in this business and said it's a big factor in her decision to remain independent.
Although acquisitions in the electrical business may have momentarily slowed, independent distributors like Laurie Gross face the decision about whether to sell family-owned businesses every day. It's one of the industry's eternal dilemmas.