The article below appeared in the February issue
of TED magazine, official publication of the National Association of
Electrical Distributors. It is used here with NAED's permission.
Who’s the biggest?
The post-2007 top five electrical
distributorship shake-out.
By Joe Salimando
Thanks to headline late-2007 acquisitions, which
saw the absorption of USESI and the prospect of a takeover of
Hagemeyer NV, there’s been a shake-up at the very top of the
electrical distribution business in the United States—and the world.
With Hagemeyer to be divvied up by Rexel SA and
Sonepar SA, and USESI now a part of Consolidated Electrical
Distributors (CED), the cards have been dealt in new ways. Add
WESCO’s 2006 acquisition of Communications Supply Corporation (CSC),
and the major deals in the past two years put new cards in the hands
of four of the top five electrical distributors in the United
States.
Who’s the biggest? Here’s how this reshuffling is
playing out today:
• CED emerged in October to acknowledge its
major move to purchase USESI. Here’s what is known about the
transaction:
• CED has never previously purchased a
company of such size.
• USESI’s sales before the transaction topped
$700 million.
• Owners of USESI—the sellers—included top
executive Richard Worthy (who led Sonepar’s initial acquisitive
foray into the United States) and two private equity concerns.
One of those (the primary owner) was a family investment arm
owned by Michael Dell, founder of Dell.
• Worthy remains with USESI and, thus, with
CED.
• CED has shifted a previous acquisition
(Standard Electric Supply) to USESI’s silo.
CED
It's possible that CED owns close to one-third of
the combined total U.S. branches operated by it, Graybar, Rexel,
Sonepar, and WESCO.
Forbes magazine’s list of “America’s
Largest Private Companies” put CED’s 2006 sales at $3.28 billion, a
17% increase over one year earlier. Add USESI (and the Standard
Electric acquisition, which is being folded into USESI), and some
growth, and it seems CED could have perhaps $4.5 billion in 2007
sales, if not more.
Is CED the biggest electrical distributor? In
terms of the number of U.S. branches, it certainly seems so.
Hagemeyer
Rexel appeared to outbid Sonepar in November and
won the right to purchase Hagemeyer. But the deal—which was taking
time to come together—included a provision that Rexel would sell off
pieces of Hagemeyer to Sonepar. Hagemeyer’s 2007 global sales seem
likely to top $9 billion.
So what happens to Hagemeyer? Rexel reportedly is
taking most of the European operations (perhaps 58% of the sales
dollars). It has contracted to sell off Hagemeyer’s not-small North
American and Asia/Pacific operations, and some minor European
slices, to Sonepar.
Essentially, the companies that house the world’s
two largest electrical distribution operations—one with stock in
public hands (Rexel) and one family owned (Sonepar)—have made a meal
out of the once-struggling Dutch company.
Note: While Rexel and Sonepar are not on the same
team, together they are a powerful global force. After absorbing
Hagemeyer, these two France-based firms will, together, account for
4,426 of the branches represented on the table.
Rexel SA.
One quickly gets to some breathtaking numbers
when adding up the pieces of Rexel and throwing in the big
Hagemeyer bite:
• Rexel’s pro forma 2006 sales were 10.7 billion
euros, which works out to $15.8 billion.
• In the first nine months of 2007, Rexel’s
worldwide sales were up 3.5%.
• Add in Hagemeyer’s sales in Europe—where that
company had a 7.1% sales increase through the year’s first three
quarters—and Rexel’s annual sales could total $6.25 billion.
All told, Rexel’s 2007 global distribution sales
could top $22 billion.
What did the company obtain by consuming
Hagemeyer? Before the deal, North America made up close to half of
Rexel SA’s sales—thanks in significant part to its 2006 acquisition
of GE Supply (now known as Gexpro).
Now, sales on this continent will comprise
roughly 37% of the company’s global revenues; Europe will comprise
more than 50% of Rexel SA’s total sales.
Sonepar SA.
With 9.45 billion euros in 2006 sales—about $14
billion—Sonepar was (and remains) the world’s second largest
electrical distributor.
Plans detailed during the Hagemeyer acquisition
call for Sonepar to take over U.S. (approximately $2 billion in
sales) and Asia-Pacific (more than $700 million in sales)
operations.
Omitting 2007 organic growth that came from
smaller acquisitions (the company bought two companies in Latvia
during the Hagemeyer dealings), Sonepar’s annual sales could end up
at $17 billion or more.
Of that, roughly $4.4 billion (more than 25%)
comes from the United States. (Some of that is nonelectrical—safety
supplies added with the purchase of Hagemeyer.)
Note: If one credits all of Hagemeyer’s U.S.
branches to Sonepar, the company will have more than 450 locations
in this country—roughly equal to what Rexel has, including Gexpro.
WESCO
WESCO’s name was thrown about by financial re
porters seeking to stoke the flames of a hot bidding war for
Hagemeyer, but an offer never materialized. Here’s what’s known
about WESCO’s current situation:
Through nine months of 2007, almost all of the
company’s growth ($524 million of $568 million in added sales) came
via its 2006 acquisition of CSC. To put that another way, WESCO’s
sales at the three-quarter mark were $4.514 billion; the increase
outside of CSC was only $44 million (or 1.1%) over sales at the
nine-month mark of 2006.
Integration of CSC seems to be going well.
CSC’s 2006 sales were reported as roughly $600 million. That
operation seems headed for a double-digit sales increase this year.
WESCO has the wherewithal to make additional
purchases. At this moment, however, it seems to be concentrating on
shrinking the number of shares it has outstanding. After completing
a $400 million stock buy-back in September, the company immediately
announced it would invest another $400 million in open-market
purchases of WESCO stock.
Blanket finish
If one combines its electrical and datacomm
operations, how big is WESCO in the United States? In 2006, U.S.
sales were given as $4.6 billion. Hold that flat if you like, for
2007, but add in $660 million, or more, for CSC. Now subtract
something for WESCO’s fledgling fastener operation and its
manufactured housing business. For a back-of-the-envelope number,
peg WESCO’s U.S. electrical and datacomm sales at roughly $5
billion.
How about Rexel? When the company acquired GE
Supply, press releases indicated the combo would have $4.7 billion
in 2005 sales. One must add something to that for growth in 2006,
and even more for acquisitions (including Rexel’s U.S. acquisition
of CLS of New England). Now subtract something for the foreign
operations included in GE Supply’s total and for slight declines in
2007. In round numbers, a guesstimate for Rexel (including Gexpro)
in the United States in 2007 comes in at around $5 billion.
Sonepar’s total U.S. sales (including Hagemeyer)
were given earlier at about $4.4 billion. Let’s stick with that
number, knowing that we should subtract something from it for the
nonelectrical (safety) sales that the company is acquiring with
those various Hagemeyer operations.
What about Graybar? The company’s 10-K filing
with the Securities & Exchange Commission does not break sales down
by geography. Sales this year seem headed slightly north of last
year’s $5.2 billion; however, something must be subtracted for its
Canadian operations—so let’s put Graybar at about $5 billion.
Then there’s CED, which seems to be a stab in the
dark at any given moment. For consistency’s sake, let’s stick with
the $4.5 billion previously noted.
Essentially, then, this handicapping effort puts
the five competitors very close to each other. It’s what they call a
“blanket finish” at the racetrack.
SIDEBAR: Who’s still a buyer?
Identifying the largest electrical/datacomm
distributor in the United States is interesting, as what it boils
down to for many TED readers is simple: If and when I want to sell
my electrical distribution company, who’s likely to make an offer?
Here’s some conventional wisdom on which very
large electrical distributor might buy your company, with regard to
the players named in the story to the left:
• CED/USESI. Richard Worthy’s career at
Sonepar and his shaping of USESI has been all about buying
companies. Also, Worthy has signed a six-year contract with CED;
USESI will continue to do the things that it has done
recently—buy distributors to integrate; and USESI will grow by
opening branches. The company has opened 19 so far; in 2008,
Worthy plans on double digits.
• Graybar’s philosophy, as revealed in public
statements, does not anticipate a major new program of
acquisitions.
• Rexel. Dick Waterman, boss of the holding
company that overseas Rexel and Gexpro, has said that further
acquisitions to build out each operating unit were not only
possible, but also anticipated.
• Sonepar. Word is that Sonepar will have
some work to do to blend the Hagemeyer units it has in the
United States into its fold.
• WESCO doesn’t seem to be suffering from the
effort of integrating CSC. Furthermore, the company’s free cash
flow seems to be healthy—which could enable it to make
purchases.
What’s more, the company’s debt-to-equity ratio
is decent, and it has made several small acquisitions. Still, the
company’s internal focus might lead one’s thinking away from a slew
of new acquisitions. —J.S.
