HD Supply Holding, Inc., Atlanta, owner of HD Supply, says it has a definitive agreement to sell its HD Supply Power Solutions business unit to Anixter International for $825 million in cash. The transaction is expected to close in HD Supply's third quarter of fiscal 2015 subject to customary regulatory approvals. The deal is the largest ever acquisition by Anixter, and suggests a departure for the company.
HD Supply Power Solutions is a large utility-oriented multi-line distributor built by HD Supply on a platform of the former Hughes Supply and other acquisitions, and is considered one of the leading utility distributors in the United States. Power Solutions distributes over 200,000 utility, electrical and industrial MRO products to approximately 13,000 customers including investor-owned utilities, public power utilities, electrical contractors and industrial businesses. Operating from a broad geographic footprint of approximately 130 branches in 30 U.S. states and 4 Canadian provinces, Power Solutions reported fiscal 2014 revenue of $1.9 billion and adjusted EBITDA of $79 million.
This makes it seem puzzling that Anixter, an international wire and cable specialist distributor whose involvement in the highly specialized utility market going into this deal has been a small slice of a market mix dominated by industrial, security and communications markets, would be interested in acquiring a utility specialist.
The move may suggest a change of focus for Anixter, which last year conducted a fairly public search for a buyer and found no takers at its asking price. Anixter sold its OEM fasteners business to a private equity firm in February this year.
Anixter president and CEO Bob Eck framed the deal as a move to sharpen Anixter's focus, while also making Anixter more of a full-line electrical distributor to its customers:
“Power Solutions is a compelling strategic acquisition for Anixter. Consistent with our message that we are sharpening our focus, this transaction will significantly enhance our competitive position in the electrical wire and cable business and further strengthen our customer and supplier value proposition. In addition to transforming our existing utility business into a leading North American distributor to the utility sector, this acquisition will enable us to provide a full line electrical solution to our existing customers and will provide us with broader access to the mid-size electrical construction market,” said Eck. “Like Anixter, Power Solutions has built their business on providing complex supply chain services and value added distribution to their customers.”
HD Supply had been rumored to be shopping its utility distribution business for some time as a way to improve its finances and reduce its exposure to the challenges facing utility companies.
“After a detailed evaluation, we determined that a sale of our Power Solutions business to Anixter is in the best interests of our Power Solutions associates and HD Supply shareholders,” said Joe DeAngelo, HD Supply chairman and CEO, in a release announcing the deal. “This transformational transaction improves our ability to profitably grow in excess of end market growth estimates and will allow us to further enhance our capital structure.”
In the release, HD Supply also covered its performance outlook for the second quarter of 2015. After reflecting Power Solutions as a discontinued operation, the company anticipates net sales in the second quarter of fiscal 2015 to be in the range of $1,966 million to $2,021 million, and adjusted EBITDA in the range of $245 million to $257 million. This is in line with the company’s previously disclosed estimates.
HD Supply’s preliminary estimate of net sales in June were $638 million, which represents 5.1% growth versus prior year.