Saltwater fishermen on the Eastern Seaboard live for that magical moment when the ocean waters begin to boil, because it often means a school of bluefish are feeding on baitfish. They churn up the water in a frenzy of activity. Seagulls circle the scene, and dive into the waters after the baitfish that elude the blues. With a few well-placed casts into the action, fishermen can hook enough bluefish for dinner.
Electrical distributors, independent manufacturers' reps and electrical manufacturers are waiting for the waters to start boiling again in the electrical market. It's been a frustrating wait over the past three years, and even the best casts aren't landing much new business.
That may be starting to change. From the recent BICSI voice/data conference comes the happy news that the waters are moving again in the low-voltage wiring market, a business segment that had been crippled by the troubles in the telecommunications industry.
The first ripples of recovery may be months away for many segments of the electrical market. Before you start to see them, you can prepare for the upturn. Lock in on pricing for commodity items, negotiate any union contracts and train your people with the proper skills so they can land some new business with their first few casts. You have more leverage in down times when negotiating with manufacturers or unions than you will when business improves.
The electrical wholesaling industry will be a much different place from the environment we experienced in the 1995 to 2000 expansion era. One of the biggest changes will be the unfortunate fact that much of the industrial business the electrical industry enjoyed throughout its history has disappeared because of downsizing, relocation, streamlining and the move of many manufacturing operations overseas.
In this month's cover story, “The Rep: Today and Tomorrow,” p. 24, Hank Bergson, president, National Electrical Manufacturers Representatives Association (NEMRA), Tarrytown, N.Y., says reps are doing more statistical analysis of the marketplace, additional target marketing that identifies potential customers and less “chasing smokestacks.”
“When they get established with that customer, they are looking for other sales opportunities,” he says. “They are asking, ‘What else do I have that you might need?,’ or, ‘What do you need that I can provide for you?’”
Bergson says as some NEMRA reps have redefined their market focus they are moving into new markets, such as the voice-data-video (VDV) business. When this market recovers, one pocket of prosperity may be “datamation” work. Customers will need to tie their production processes on the factory floor closer to the executive suite and to other locations around the globe with fiber-optic pipes that will enable them to analyze real-time production data.
While the industrial market will have changed quite a bit when this recession ends, there at least one market will remain constant: consolidation. Consolidation in the electrical wholesaling industry will continue — with a new twist. Business owners selling their businesses won't get some of the astronomically high selling prices that were seen in the 1990s. As you will read in the article, “Selling Your Business,” p. 34, the prices acquirers will be willing to pay will be multiples of 4x to 6x adjusted EBIT (earnings before interest and taxes).
You may also see a new name in acquisition news. In the past six months, Crescent Electric Supply Co., East Dubuque, Ill., purchased two well-known distributors, Kennedy Electrical Supply Corp., Jamaica, N.Y., and Missouri Valley Electric Co., Kansas City, Mo. The company is reportedly looking at several other deals as well.
Change will always be a constant in the electrical wholesaling industry. It can be ruthless. The trick is to reposition your company to deal with the changes coming down the road faster than your competitors.