Electrical Wholesaling's picks for the most interesting news in 2008
- The Credit Crunch Squeezes Funding Available for Construction Projects
Nowhere does Wall Street's financial meltdown hit the electrical construction market more directly than in the financing of construction projects. It's a pretty simple equation: No available credit for general contractors, building owners and developers equals no work on new construction projects for electrical contractors and other subcontractors — and no demand for electrical supplies. The credit crunch is affecting projects of all sizes. Zillionaire T. Boone Pickens put his massive Texas wind farm on hold because even he can't get the cash he needs. Work has also stopped on two of the tallest office towers in the world — the 150-story Chicago Spire designed by renowned Santiago Calatrava and the 1,968-foot Russia Tower in Moscow, the tallest office tower under construction in Europe. But it also affects more typical projects that distributors supply — perhaps a 100-unit townhouse project or a strip shopping center with a gas station, restaurant, coffee shop and several retail shops, or a five-story office building leased out to various tenants.
- Copper's Wildest Ride Takes Pricing Closer to More “Normal” Levels
Declining demand for copper sparked a crash from record heights topping $4.00 per pound down closer to $1.50, which is pretty darn near the high end of the 60 cents per pound to $1.20 per pound historical pricing range. When you are selling miles of wire and cable, it's really easy to get way too macro when looking at the reasons for the decline. Distributors, manufacturers and reps have little if any direct impact on some of the macro reasons that have had the most impact on copper pricing, such as less demand from China, striking workers at copper mines and civil unrest in copper-producing countries. What's next? The best minds in the metals world and electrical professionals who have spent their careers monitoring wire and cable pricing don't have a clear idea of where prices may go from here. The best advice? Make your purchase to service real-world customer demand and don't get tripped up in the speculation game. It's for madmen only.
- Acquisitions of ESCOs Grab the Headlines in the Green Market
Ah, the elusive green market. It's the latest bandwagon to pull into town, but at the same time it's a classic market opportunity that's been available for more than 30 years. Green was certainly in the news this year, as more companies than ever grabbed a seat on the bandwagon.
Not to sound too cynical, but what's so new about green? The lighting companies have marketed the energy-efficient features of their lamps, ballasts, fixtures, controls and related equipment since the first oil crisis in the 1970s and plenty of electrical distributors, reps and end users have been in the green market before it was called “green.” The distributors who have made the most money on this market niche over the years have been doing it quietly — and profitably. On one hand they don't want to attract any unnecessary attention to what's been a nice little niche for them. But some of the distributors who know it best say that with millions of square feet of office space that needs to be relit with the latest lighting technology, there's plenty of business for everyone.
A new twist to the green story in 2008 were the acquisitions of several energy-service companies (ESCOs). ESCOs service end users' needs for more efficient buildings. Their interests include lighting retrofits but typically go far beyond the electrical world into energy-efficient heating and air conditioning (HVAC), insulation, windows and doors and on-site power generation. They tend to focus on local, state and federal government work and the school, university and hospital markets. A study published in 2007 by the Ernest Orlando Lawrence Berkeley National Laboratory said these core markets account for 80 percent of the nearly $6 billion in whole-building (not just electrical) retrofit work, and that the commercial/industrial markets will account for 15 percent of their work. The skill set of ESCOs tends toward system design and financing, but quite often includes product supply, too.
One lighting manufacturer that's one of the most ardent supporters of the electrical distributor as a primary channel to market has for the past 40 years also been committed to providing some similar design and installation ESCO-type solutions that can at times compete with distributors' customers in the lighting retrofit market. To expand its footprint in this lighting maintenance work, Sylvania Lighting Services, Danvers, acquired Amtech Lighting Services, one of the nation's largest lighting maintenance companies, from ABM Industries, New York. With the addition of Amtech's network of 26 branches, 64 satellite operations and fleet of 500 to 900 service vehicles, Sylvania Lighting Services said the acquisition makes it the nation's “most comprehensive lighting service organization.”
In a smaller purchase, Servidyne Inc., Atlanta, acquired Atlantic Lighting and Supply Co., also of Atlanta, a lighting distributor that sells energy-efficient lighting products and solutions to property managers, building engineers, contractors, store planners, facility managers and architects in the commercial, industrial, multi-family and institutional markets. The 29-year-old company specializes in the design, sale, distribution and installation of energy-efficient lighting systems. Atlantic Lighting & Supply's services include assistance in lighting design and retrofits, building energy audits and lighting maintenance. Servidyne prefers to call itself “a building performance expert services and real estate company” rather than an energy-service company (ESCO), although it provides many of the same services as an ESCO. Its energy retrofit expertise ranges far past the confines of the electrical market.
Horizon Solutions LLC, Rochester, N.Y., also bought an ESCO with its purchase of Lighting Resource Management (LRM), Newburyport, Mass. LRM has completed more than 200 lighting upgrade projects for large corporations throughout the Northeast. The company provides service to industrial, commercial and government facilities looking to upgrade their lighting systems, improve energy efficiency and take advantage of the incentives and rebates available to companies that upgrade to the latest lighting technology.
- Fewer Blockbuster Distributor Acquisitions in 2008
Acquisitive distributors may be finding it a little harder to get the cash they need to fund acquisitions, but there were still some mega-deals going down in 2008. The sheer numbers of distributor acquisitions didn't decline all that much in 2008 from 2007, when Electrical Wholesaling and Electrical Marketing newsletter reported on close to 40 deals and the total value of the electrical sales changing hands in those transactions was at least $2.5 billion. It looks like 2008 will close out with about 20 deals with estimated electrical sales of $1 billion (see chart on page 30). The Top 200 electrical distributors sold during 2008 included Beacon Electric Supply, San Diego; Electric Fixture and Supply Co., Omaha, Neb.; ESSCO Wholesale Electric, Chandler, Ariz,; Equity Utility Service Co., Marietta, Ga. Harris Electric Supply Co. Inc., Nashville, Tenn.; Maurice Electrical Supply, Washington, D.C.; World Class Wire & Cable, Waukesha, Wis., and the U.S. operations of Hagemeyer NA.
In addition to these largest acquisitions, specialty distributors appeared to be quite marketable. Along with acquiring one of the wire specialists in World Class Wire & Cable, Anixter International, Glenview, Ill., bought several fastener specialists. Facility Solution Group, Austin, Texas, which acquired OK Electric Supply, Perth Amboy, N.J., in 2006, added a lamp specialist to its growing portfolio of energy-oriented companies with its purchase of Denver's Light Bulb Supply Co., and Sonepar added to its utility offering with Stuart C. Irby's purchase of Equity Utility Service Co.
- IDEA and Trade Service Part Ways
Somewhere deep within the electrical industry's hard drives and servers there's a whole lot of shaking going on. When IDEA Inc., Arlington, Va., and Trade Service Corp., San Diego, agreed to part ways in July, it left the Industry Data Warehouse (IDW) that IDEA built and maintains without an important source of data to populate a large number of its electrical product records of the entire electrical industry. While the exact number of stock-keeping units (SKUs) impacted are open to debate, there's no question that the data industry in electrical land is indeed at a crossroads, as Electrical Wholesaling has reported in cover stories in its January, September and December issues. The IDEA/Trade Service agreement to disagree puts two bands of devoted data enthusiasts in direct competition with each other. Led by Tony Dubreville and a veteran management team, Trade Service is glad to be done with the I2 ownership era and to be operating as a fully independent company that can sell its data services to anyone in the electrical market. At IDEA, a proven team of data veterans has survived some bruising political turf battles, new leader Bob Gaylord has rallied his troops and they are going all-out to fulfill IDEA's vision of becoming the electrical industry's central source for electrical product information (See cover story on page 22).
- The Housing Market Waits Until Next Year (maybe)
Sick of hearing how bad the housing market is? We will make this brief (see page 34 for the grim statistics on the residential market). It's going to take most of next year to sell all the available housing inventory sitting vacant on cul-de-sacs throughout the United States. Then, and only then, will homebuilders start swinging their hammers and help this market crawl out of the wreckage. Did we mention that housing starts are at their lowest mark in, like, forever? Sorry about that. Just be glad your livelihood doesn't depend on selling dishwashers, refrigerators, countertops, bathroom vanities and other residential-only products.
- The Rise and Fall of Gas Prices Prove Just How Closely Tied the Electrical Market is to Almighty Oil
It's hard to believe that just a few short months ago, electrical distributors were adding fuel surcharges to deliveries. When gas prices topped $4 per gallon in May, distributors were parking their Yukon Denalis and Lincoln Towncars in the back of their warehouses or up at their lake houses and thinking about taking mass transit to the office. With gas at well under $2 per gallon at year-end, they are burning their bus passes, enjoying their big rigs again and forgetting all of that talk about buying that SmartCar. No one believes that gas prices will stay this low for very long. But this crazy ride in gas prices sure drove home the point that the electrical market is an oil-based business. Manufacturers need to fuel their trucks to deliver products to distributors. Reps spend hours of windshield time traveling to the far reaches of their market areas to call on end users and visit with distributors' far-flung branch networks. Electrical distributors have to gas up all those delivery vehicles. Electrical contractors are always on the move, too, traveling to job-sites and picking up all of those will-call orders.
- Those “Other Guys” are Getting Hammered, Too
Electrical distributors have their own worries when it comes to the economy, but at least one distributor a few blocks off of Main Street in the electrical market has it even worse, because it's focused so squarely on the residential market. With more than 5,200 branches worldwide, the British firm Wolseley is by most estimates the largest distributor of construction-oriented products and is a well-known player in acquisition circles. For years there's been speculation that it would buy its way into the electrical market. Any grand plans of growth on a massive scale will probably have to wait as the company recalibrates to the realities of its mostly residential market interests. Layoffs have rocked Wolesley subsidiaries Ferguson Enterprises, a huge player in the plumbing market, and Stock Building Supply, a supplier to the homebuilding market. By the end of November 2008, the company planned to cut 3,400 jobs at its Stock Building Supply's U.S. operations, and has cut 15,000 employees globally (18 percent of total head count) since August 2007.
On the industrial front, W.W. Grainger Inc., is retooling its operation by combining its Lab Safety operations with its Grainger Industrial Supply business unit so that the two businesses will use the same branch, logistics and computer networks. Lab Safety products will be stocked in the same branches that carry electrical products and other industrial products for MRO applications.
- U.S. Manufacturers Ink Fewer Big Deals in 2008
While Electrical Wholesaling and Electrical Marketing reported on fewer manufacturer mergers and acquisitions than usual during the past year, there were plenty of strategic purchases in the lighting market and VDV markets, and plenty of investment overseas by North American firms. By dollar volume, the purchase by South Korea's LS Cable of Superior Essex, Atlanta, for approximately $900 million was probably this year's largest acquisition. Another large deal was Eaton Corp.'s, purchase of the Moeller Group, Bonn, Germany, a transaction it initially announced in 2007.
Several manufacturers made strategic acquisitions to enhance their positions in the green market. GE Energy, Atlanta, acquired Kelman Ltd., Lisburn, Northern Island, a provider of monitoring and diagnostics technologies for transformers for smart-grid applications, and Schneider Electric announced plans to purchase Xantrex Technology, Vancouver, British Columbia, a manufacturer of inverters for the wind and solar markets. Cree Inc., Durham, N.C., expanded further into LED lighting fixtures with its purchase of LED Lighting Fixtures Inc., and inked a deal with Zumtobel to sell LED downlights in Europe. The companies' first-year sales target is 50,000 units.
In other lighting news, GE said it's exploring all options for its Consumer & Industrial operations, which includes its lighting and industrial businesses, and Paragon Lighting, Hudson, Wis., merged with Varon Lighting Group, Elmhurst, Ill. Hubbell Inc., Orange, Conn., bought Kurt Versen, a specification-grade lighting fixture manufacturer for approximately $100 million, and in an unrelated move bought Unity Manufacturing's assets in outlet boxes, switch boxes, cover plates and ceiling fans, but not the Unity name and trademark or its metal enclosure unit in Garland, Texas.
Leviton Manufacturing Co. Inc., Little Neck, N.Y., and Thomas & Betts Corp., Memphis, Tenn., were in the news on a variety of fronts in 2008. Leviton bought back the minority ownership stake T&B held in the company since 1994 and built its position in residential control networks with the purchase of ControlThink, Orem, Utah. T&B acquired Homac Manufacturing Co. for its expertise in the utility and substation markets and sold its PVC conduit and pipe business to Mitsubishi Corp., Tokyo, Japan.
The voice-data-video (VDV) market saw plenty of action, too. GE Security Inc., Bradenton, Fla., bought certain assets of CoVi Technologies, Austin, Texas, an IP video systems provider; Cablofil/Legrand acquired PW Industries, Pico Rivera, Calif., a manufacturer of cable trays and prefabricated wiring systems; Tyco Electronic Power System was purchased by the Los Angeles-based Gores Group and private-equity firm; Honeywell, Morris Township, N.J., bought Norcross Safety Products, Oak Brook, Ill.; and Onyx Power Inc., a provider of power magnetic and power distribution equipment for the VDV market, was bought by Power Distribution Inc., Richmond, Va.
Also in the VDV arena, Cooper Industries, Houston, bought three companies for a total of $100 million: SurePower Industries Inc.; Omnex Control Systems and Roam Secure. SurePower manufactures DC electrical systems for the transportation industry; Omnex is a specialist in wireless applications and Roam Secure provides text alert and other information notification technology.
Other acquisitions of note included: Zurich, Switzerland-based ABB Corp.'s purchase of U.S. transformer company Kuhlman Electric, Versailles, Ky.; Beloit, Wis.-based Regal Beloit Corp.'s acquisition of Dutchi Motors B.V. in Arnhem, Netherlands; Siemens' purchase of Innotec, Schwelm, Germany, a provider of software for the process industry; and the acquisition by Maxis Corp., Mesa, Ariz., of Elder Designs Inc., Arapaho, Okla., the maker of the Wire Wagon wire and service cart line.
On the global stage, Rockwell Automation, Milwaukee, Wis., bought the assets of Chinese engineering firm, Xi'An Hengsheng Science & Technology Co., a specialist in the design of projects in China's electrical power and heavy process industries; Hammond Manufacturing, Cheektowago, N.Y., took a significant position in Ritec Enclosures, a Taiwanese manufacturer of enclosures; and Ferraz Shawmut, Newburyport, Mass., acquired a majority stake in the Chinese fuse manufacturer Zhejiang Mingrong Electrical Protection.
- Who's Who at the Zoo: Electrical Executives on the Move and On the Way Up
The parade of major personnel appointments never ceases in the electrical wholesaling industry. The biggest news of the year was the announcement by the National Electrical Manufacturers Representatives Association (NEMRA), Tarrytown, N.Y., that Ken Hooper, an industry veteran with experience at senior-level posts at GE, Pass & Seymour/Legrand and Ferraz Shawmut, would be succeeding Hank Bergson as president effective Jan. 5.. Following are other major promotions, changes and retirements (see story on page 20).
On the distributor front, the biggest news were the announcements that Paul Klasing would become president of Sonepar USA, Philadelphia, succeeding Tony Burr, who will continue with Sonepar in a new global role focusing on strategic initiatives; Sam McCamy was leaving Roden Electrical Supply Co., Knoxville, Tenn., after 30 years with his family business to pursue other business interests; and Wes Smith will become president of Mayer Electric Supply at the end of 2009, following Jim Summerlin's retirement. Nancy Goedecke will succeed Charles Collat Sr. as chairman. In other distributor news, T. Scott Lawhead will become president of The Hite Co., Altoona, Pa., on Jan. 1.; Rodger Cherry moved up to president at Wiedenbach-Brown, Hawthorne, N.Y.; Robert Grubbs retired as CEO of Anixter International, Glenview, Ill., and was replaced by Robert Eck, who was COO; Jeffrey Baker was appointed to the newly created position of COO at Platt Electric Supply, Beaverton, Ore. and Dodge Monteleone, retired from and closed down his electrical distributorship, Royal Electric, Syracuse. N.Y., after 35 years with the business and 53 years in the electrical industry.
Vendors made several key personnel announcements, too. Jim James became president and chief executive officer of Ideal Industries, Sycamore, Ill., replacing Robert Lane, who retired; Pieter de Haan was appointed CEO of Advance; Bill Burke was appointed group president of Lenox, East Longmeadow, Mass.; Bill Starr was promoted to vice president of sales and marketing for Madison Electric Products Co. Inc., Bedford, Ohio, and his father, Bob Starr, began transitioning into a new sales role at the company. Jeffrey Tartamella, was appointed president of Sea Gull Lighting Products, Riverside, N.J.; Andrew Quinn became executive vice president at COO at Ilsco, Cincinnati; and Bob Bukowksy retired from Ideal Industries as vice president of sales after 22 years with the company.
|Light Bulb Supply Co., Denver||American Light/Facility Solutions Group, Austin, Texas|
|QSN Industries, Wood Dale, Il.||Anixter International Inc., Glenview, Ill.|
|Quality Screw de Mexico SA, Aguascalientes, Mexico||Anixter International Inc., Glenview, Ill.|
|World Class Wire & Cable, Waukesha, Wis.||Anixter International Inc., Glenview, Ill.|
|Harris Electric Supply, Clarksville, Tenn.||Border States Electric, Fargo, N.D.|
|White Electrical Supply, McAlester, Okla.||Broken Arrow Electric Supply, Broken Arrow, Okla.|
|Electrical Sales Engineering, Bowling Green, Ky.||Cape Girardeau Electrical Supply, Cape Girardeau, Mo.|
|Owen Electric Supply, Houston||Consolidated Electrical Distributors Inc., Westlake Village, Calif.|
|Project Lighting Co., Houston||Consolidated Electrical Distributors Inc., Westlake Village, Calif.|
|Davidson Electric Wholesale Supply Inc., Mocksville, N.C.||DESCO Inc., Salisbury, N.C.|
|Electric Fixture and Supply, Omaha, Neb.||Electrical Engineering & Equipment (3E), Windsor Heights, Iowa|
|Mountain Vista Supply, Sierra Vista, Ariz.||ESSCO Wholesale Electric/Sonepar USA|
|Robson Electric Supply, Johnson City, N.Y.||Friedman Electric/Sonepar USA|
|Beacon Electric Supply, San Diego||Gexpro/Rexel, Dallas|
|Current Electrical Sales, Camden, N.J.||High Road Capital Partners, New York|
|Lighting Resource Management (LRM), Newburyport, Mass.||Horizon Solutions, Rochester, N.Y.|
|Electric Supply of Macon, Macon, Ga.||Mayer Electric Supply, Birmingham, Ala.|
|Walsh Electric Supply (Rutland, Vt. branch)||Needham Electric Supply (NESCO), Canton, Mass.|
|Atlantic Lighting and Supply, Atlanta, Ga.||Servidyne Inc., Atlanta|
|Royalite Lighting, Amherst, N.Y.||Shanor Electric Supply, Buffalo, N.Y.|
|ESSCO Wholesale Electric, Chandler, Ariz.||Sonepar USA, Philadelphia|
|Hagemeyer North American operations, Charleston, S.C.||Sonepar USA, Philadelphia|
|Equity Utility Service Co. Inc., Marietta, Ga.||Stuart C. Irby/Sonepar USA|
|Tennesco, Chattanooga, Tenn.||Stuart C. Irby/Sonepar USA|
|Maurice Electrical Supply, Washington, D.C.||USESI/Consolidate Electrical Distributors Inc., Westlake Village, Calif.|
|Excel Industriel, Granby, Quebec||W.W. Grainger, Chicago|
|North-West Electric Supply, Willow Grove, Pa.||Yale Electric Supply, Lebanon, Pa.|