The surge in acquisitions by distributors and manufacturers touches all shores of the electrical wholesaling industry. Part one of two articles.
Over the next few months, you will see a renewed focus on the international market in the pages of EW's print edition and in its related digital products. The magazine has covered the global marketplace regularly in the past, but with the number of acquisitions of North American distributors and manufacturers by companies from overseas and the increasing interest in overseas companies by U.S.-based firms, EW's editors decided it was time to provide our readers with more information on these important trends. This article will kick off this global coverage with an update and analysis on several key market drivers in the global distributions market.
Additionally, EW's renewed focus on the international market will include a new regular department on the international electrical wholesaling industry, “Global Circuit,” which debuts in this issue on page 10. In the not-too-distant future, we will also be publishing a new quarterly digital English-language edition of the magazine for new subscribers that live outside the United States. It will be packed with international industry news of note, and articles on the basics of running a successful electrical distributorship. There's one thing we have learned in our study of distributors from around the world — as long as you can supply the right products when and where the customer needs them and at the right price, most of the same rules still apply, whether you are managing an electrical supply house in Perth, Australia, or Passaic, N.J. Before we venture too far out into our new global endeavors, the editors of EW thought it would be helpful to summarize the following global electrical market trends and to offer some ideas on where we think they're headed in the near future.
Acquisitions of U.S. distributors by Rexel and Sonepar and other companies from outside North America;
The expansion through acquisitions of electrical manufacturers like ABB, Legrand, Osram, Philips and Siemens into the United States;
The growth and popularity of buying/marketing groups outside the United States;
The deluge of products in the LED and solar markets that have flooded the United States in recent years;
The growing acceptance in some market niches of electrical products manufactured to IEC rather than NEMA standards;
And most recently, the spread of international standards in the e-commerce arena.
Distributors all over the world are being acquired by the largest global distributors
The surge in distributor acquisitions over the past two years isn't limited to the United States. We have also seen Sonepar, Rexel and WESCO make some big purchases in Brazil, Canada and the United Kingdom. There have been a surprising number of acquisitions in Brazil, no doubt due in large part to the country's long-term growth prospects as one of the largest economic engines in Latin America; the multi-billion-dollar buildup of infrastructure for soccer's 2014 World Cup; the 2014 Summer Olympics in Rio de Janeiro; and the offshore oil discoveries in the Atlantic Ocean. These acquisitions include Rexel's purchases this year of Brazilian distributors Delamano and Etil; Sonepar's purchase of Rosa Leal; and the purchase by the new Electrical Distribution Global Enterprise (EDGE) group of Ladder Automacao, a large automation distributor.
The Canadian electrical wholesaling market is already much more consolidated the U.S. market, where the five largest electrical distributors in Canada represent more than 65 percent of total industry sales, according to John Kerr and Paul Eitmant of IP International, two consultants with decades of experience in Canada's electrical market (check out EW's May 2009 cover story, “View from the North” at www.ewweb.com). We have seen several large deals in Canada over the past two years, including the purchases by WESCO Distribution Inc., Pittsburgh, of Trydor Industries (Canada), Ltd., in Surrey, British Columbia, a utility specialist with approximately $35 million in sales and other locations in Calgary and Edmonton, and its purchase of Brews Supply, Ltd., Calgary, Alberta, a full-line distributor with a focus on Canada's booming oil sands and energy markets and locations in, Edmonton, and Fort McMurray, Alberta; and Mississauga, Ontario.
Sonepar now has an estimated 99 locations in Canada, with its most recent acquisitions of four-branch Dixon Electric, Sudbury, Ontario; and SESCO/QUESCO, Toronto. And earlier this year, Rexel added 13-location Liteco, Fredricton, New Brunswick, the largest distributor in Canada's Maritime Provinces with more than $60 million in sales. Rexel does approximately $1.5 billion in annual sales in Canada and has an estimated 221 branches and 2,200 employees in the country.
In recent years, the United Kingdom's electrical wholesaling industry has not had quite as many acquisitions as we have seen in Canada. Rexel did make a big purchase this year with its acquisition of Wilts Wholesale Electrical, Trowbridge, United Kingdom, a distributor with an estimated $75 million in sales and 62 locations. Rexel is a major force in the country, with an estimated $1.1 billion in sales and 380 locations, including branches run under the WF Electrical, Newy+Eyre, Senate, Denmans, Parker Merchanting and Wilts brands.
The other recent deal of note in the United Kingdom is the 2011 acquisition by Edmundson Ltd., Knutsford, (one of CED's operating companies), of the 90-location Electric Center, formerly owned by Wolseley. At the time of the acquisition, Electric Center did about $200 million in sales. Edmundson currently operates an estimated 340 total locations in the United Kingdom. These international distributors and the country's many thriving independents compete in the United Kingdom with another distributor with a global footprint — City Electrical Factors, which has approximately 400 locations in the U.K. and an estimated 371 branches in the United States.
Rounding out the larger distributor acquisitions outside the United States are Rexel's acquisition early this year of Société Commerciale Toutelectric, a $100 million distributor in southwest France, and the purchase by Anixter International Inc., Glenview, Ill., of Jorvex SA, a Peruvian wire and cable specialist that did an estimated $115 million in 2011 sales.
It's interesting to note how many of these acquisitions are in the $100 million range, which by any measure and in any country is a pretty sizeable independent electrical distributor. However, that sales figure seems a bit smaller when you compare it to the 2011 sales of either of the two largest electrical distributors on the planet — Sonepar, which logged an estimated $19 billion in sales through 2,100 locations, and Rexel, which did an estimated $16 billion in 2011 sales through 2,100 locations (not counting 2012 acquisitions). Those sales figures and branch counts have grown substantially in the past nine months if you add the acquisitions mentioned above as well as the companies' large 2012 state-side deals, including Rexel's acquisition of Platt Electric Supply and its $394 million in sales and 100-plus branches, and Sonepar's purchase of Codale Electric Supply, Salt Lake City, and its $220.4 million in sales and 11 branches.
Will all of this acquisition activity continue? Where's there's a will — and the bank capital to finance them — there's a way. The electrical wholesaling industry's largest acquirers have generally shown extraordinary patience in finding the right distributor to fill in any geographic market gaps. When you look at a map and pencil in the branches of the largest global distributors, you can quickly see where they have gaps in market coverage, and which distributors in those markets may be acquisition candidates. For instance, it was common knowledge that over the past few years Sonepar wanted to expand into California, and it did that with its purchases of Independent Electric Supply, San Carlos, and OneSource Distributors, Oceanside, Calif. The two purchases added approximately 50 locations and more than $700 million in sales. With its recent acquisition of Codale Electric Supply, the company has added nearly a billion in sales with just four deals.
The ABB acquisition of Thomas & Betts highlights the value of a well-established U.S. distribution network
Over the years, the U.S. electrical industry has seen plenty of big-time acquisitions by foreign companies. In their day, these acquisitions were big news: Osram's 1993 purchase of Sylvania; North American Philips Lighting Corp.'s 1983 purchase of the Westinghouse Lamp Division; and the acquisitions by Siemens of Allis-Chalmers in 1978, ITE Gould in 1983 and Furnas Electric in 1996.
Legrand SA, Limoges, France, has been particularly active in the acquisition market over the past few decades. The company, which had approximately $5.3 billion in 2011 sales, has acquired several dozen manufacturers of electrical products such as wiring devices, lighting controls, security products, cable management products, power distribution products and VDV products. Its U.S. electrical purchases have included Pass & Seymour, Slater Electric, Ortronics, Wiremold, Cablofil, Middle Atlantic Products, Vantage Controls, Wattstopper, PW Industries and Electrorack. In total, these acquisitions provided the company with more than $1 billion in sales.
In the past year, the acquisition that has stood out the most is the $3.9 billion purchase of Thomas & Betts, Memphis, Tenn., by ABB, the European giant with approximately $38 billion in sales. The deal gave ABB access to 6,000 distributor locations and may have signaled the start of a renewed acquisition era in the U.S. electrical manufacturing community. It's not that ABB's 2011 acquisitions of Baldor Electric, Fort Smith, Ark., for $4.2 billion, or $1 billion-plus acquisition of Ventyx, an Atlanta-based supplier of software solutions for the utility and energy markets, were small. But they just didn't stop traffic in the industry in the same way as the T&B acquisition. The deal will give T&B more visibility in global markets, but there's no doubt that this was a play by ABB to build out its distribution in the United States in one big swoop.
It's a particularly interesting deal because ABB is a powerhouse in many of the European countries where direct sales are a much bigger part of the marketing strategies of electrical manufacturers, and some industry observers are eager to see how ABB handles such a large distribution network. One big reason more manufacturers go direct in many European countries is logistics. Many of the countries on the continent are relatively small geographically, so manufacturers don't necessarily need the local warehousing that distributors provide. In contrast, in the United States and Canada, which are both 3,000 miles from east to west and well over a thousand miles north-to-south at many points, local warehousing is absolutely critical.
In contrast, few of the largest electrical companies based in the United States were over $5 billion in sales. With more than $140 billion in total company sales, GE, Fairfield, Conn., ranks amongst the largest companies in the world, but its electrical sales are a fraction of its overall revenues. GE had $2.56 billion in lighting sales, but it doesn't break out sales of its electrical distribution and switchgear units. The other large electrical companies, based on 2011 sales, include Emerson Electric Co., St. Louis ($12.1 billion, much of it outside the electrical distribution channel); Eaton Corp. Cleveland, ($7.8 billion electrical not including the $5.4 billion in sales from the Cooper Industries acquisition, $16.05 billion overall); Rockwell Automation, Milwaukee ($6 billion); General Cable, Highland Heights, Ky. ($5.87 billion); Southwire Co., Carrollton, Ga. ($4.3 billion); and Hubbell Inc., Orange, Conn. ($2.87 billion). While there aren't too many U.S. electrical manufacturers with sales figures that can compare with some of the European giants, there were quite a few U.S.-based electrical manufacturers with more than $1 billion in sales, including Acuity Brands Inc., Atlanta; Belden Inc., St. Louis; Cree Inc., Durham, N.C.; Encore Wire Corp., McKinney, Texas; and Hoffman Enclosures, Anoka, Minn.
Another interesting point of comparison in the electrical manufacturing arena between U.S.-based manufacturers and their competitors overseas is the sheer size of the companies. At approximately $40 billion in global sales, ABB is one of the very largest electrical manufacturers in the world (see chart on page 22). But a surprising number of European electrical manufacturers have annual global sales of electrical that dwarf all but the very largest U.S. electrical manufacturers. Take a look as the 2011 sales volumes (approximate due to exchange rates) of some of the other largest European electrical equipment manufacturers: Siemens AG, Munich, Germany ($80 billion in electrical, $98.6 billion in total); Schneider Electric, Rueil-Malmaison, France ($28 billion); Philips Lighting, Amsterdam, Netherlands ($7.6 billion); Nexans, Paris ($7 billion); Osram (Siemens) ($4.89 billion); and Mersen, Paris ($1.09 billion). You also can't forget some of the Pacific Rim giants like Mitsubishi, Panasonic, Sharp and Toshiba, which are major manufacturers of lighting and control products and by total sales are as big and in many cases larger than ABB, GE or the other global giants.
In part two of this two-part article in next month's issue, EW will explore the role buying/marketing groups play globally; the flood of LEDs and solar products into the United States from the Pacific Rim in recent years; the growing acceptance in some market niches of electrical products manufactured to IEC standards; and the spread of international standards in the e-commerce arena.
2011-2012 International Distributor Acquisitions
As you can see in the chart below, the U.S. electrical market isn't the only market in the world being reshaped by distributor mergers and acquisitions.
|SESCO/QUESCO, Toronto, Ontario||Sonepar SA, Paris||2011|
|Fabory Group, Tilburg, Netherlands||W.W. Grainger Inc., Lake Forest, Ill.||2011|
|Brews Supply, Calgary, Alberta||WESCO International Inc., Pittsburgh||2011|
|Liteco, Fredricton, New Brunswick||Rexel SA, Paris||2012|
|Delamano, Santo André, São Paulo, Brazil||Rexel SA, Paris||2012|
|Etil, Barra Funda, São Paulo, Brazil||Rexel SA, Paris||2012|
|LaGrange, Gent, Belgium||Rexel SA, Paris||2012|
|Societe Commerciale Toutelectric, Toulouse, France||Rexel SA, Paris||2012|
|Wilts Wholesale Electrical, Trowbridge, Wiltshire||Rexel SA, Paris||2012|
|Dixon Electric, Sudbury, Ontario||Sonepar SA, Paris||2012|
|Rosa Leal, Rio de Janeiro, Brazil||Sonepar SA, Paris||2012|
|Trydor Industries, Surrey, British Columbia||WESCO International Inc., Pittsburgh||2012|
|Jorvex SA, Lima, Peru||Anixter International Inc., Glenview, Ill.||2012|
|Ladder Automação Industrial, São Caetano do Sul, Brazil||Electrical Distributors Global Enterprise (EDGE) (distributor group), Milwaukee, Wis.||2012|
|Electra Supply, Cambridge, Ontario||Franklin Empire, Montreal, Quebec||2012|
The Electrical Manufacturers' Billion-Dollar Club
The chart below provides some sales data and employee counts for the largest electrical manufacturers in the world. Sales data is for 2011, except where noted, and employee counts are for the total company.
|THE LARGEST GLOBAL ELECTRICAL MANUFACTURERS|
|Company||Headquarters||Estimated Electrical Sales||Employees|
|Siemens AG||Munich, Germany||$80 billion ($98.6 billion total)||363,000|
|ABB||Zurich, Switzerland||$40.2 billion||133,600|
|Schneider Electric||Rueil-Malmaison, France||$28 billion||110,000|
|Philips Lighting||Amsterdam, Netherlands||$7.6 billion||122,000|
|Nexans||Paris, France||$7 billion||24,500|
|Osram (Siemens)||Munich, Germany||$4.89 billion||40,000|
|Mersen||Paris, France||$1.09 billion||NA|
|Estimated sales converted from Euros on 3/2/2012 and include all electrical products, including high-power utility and renewables.|
|THE LARGEST U.S.-BASED ELECTRICAL MANUFACTURERS|
|Company||Headquarters||Estimated Electrical Sales||Employees|
|Emerson Electric Co.||St. Louis||$12.1 billion||133,200|
|Eaton Corp.||Cleveland||$7.8 billion electrical ($16.05 billion total)||73,000|
|Rockwell Automation||Milwaukee, Wis.||$6 billion||21,000|
|General Cable Corp.||Highland Heights, Ky.||$5.87 billion||11,000|
|Cooper Industries (acquired by Eaton)||Houston||$5.4 billion||25,768|
|Southwire Co.||Carrollton, Ga.||$4.3 billion||4,100|
|Hubbell Inc.||Orange, Conn.||$2.87 billion||13,500|
|GE||Fairfield, Conn.||$2.56 billion (lighting only)*||301,000|
|Thomas & Betts Corp. (Acquired by ABB)||Memphis, Tenn.||$2.3 billion||9,400|
|Belden Inc.||St. Louis||$1.98 billion||6,800|
|Acuity Brands Inc.||Atlanta||$1.84 billion||6,000|
|Encore Wire Corp.||McKinney, Texas||$1.18 billion||886|
|Hoffman Enclosures (Pentair)||Anoka, Minn.||$1.08 billion (2010)||15,300|
|Cree, Inc.||Durham, N.C.||$1.04 billion||4,753|
|Employee counts for total company. Estimated sales include all electrical products, including high-power utility and renewables. *GE sales of power panels, switchgear and circuit breakers not available. NA: Not Available|