EW Top 200 Show Less M&A Activity

June 6, 2003
Although distributor acquisitions have slowed considerably over the past two years, several of the industry's largest firms still managed to make news

Although distributor acquisitions have slowed considerably over the past two years, several of the industry's largest firms still managed to make news with some big deals.

This month's issue of Electrical Wholesaling magazine includes its annual listing of the largest electrical distributors. This year, the magazine listed the 200 largest electrical distributors instead of the 250 largest to present a more accurate analysis of the largest companies in the industry. Several companies that for years were ranked among the largest distributors are not on the listing this year due to consolidation, including Warren Electric, Kennedy Electrical Supply Corp., Missouri Valley Electric Co., Eoff Electric and Fromm Electric of Piscataway.

When tracking the consolidation of the industry, it's always interesting to watch for changes in market share of the electrical industry's four full-line national chains — Graybar Electric, WESCO Electric, Consolidated Electrical Distributors (CED), and GE Supply. With combined 2002 sales of $12.1 billion in 2002 and industry sales for 2002 estimated at $72.1 billion, their combined market share actually dropped to 16.9 percent in 2002, from 18-plus percent in 2001. If you consider Rexel a full-line national chain and include its $2.1 billion, the market share of those five companies would be 19.7 percent.

While substantial, this market share pales in comparison to that of the largest distributors in other distribution-based industries. For instance, in the pharmaceutical and electronics businesses, the three or four largest distributors control the lion's share of the business.

In his presentation, “Electrical Industry Consolidation: Past, Present and Future,” at the National Association of Electrical Distributors (NAED) Annual Meeting last month, Neil Gillespie, principal, Channel Marketing Group, Pittsburgh, said the 10 largest full-line electrical distributors have not acquired as many companies in the past two years. In the late 1990s these companies were adding to their combined market share through acquisitions by 2 percent annually. However, in the past two years, that percentage has dropped.

While Gillespie expects acquisitions to pick up when the economy improves, he does not expect to see pricing at the five- to seven-times EBITA common in the late 1990s until acquisition candidates can show several years of growth. “Buyers want to see at least three years of consistent growth before they would be willing to pay five or six times EBITA,” he says. “A lot of people are insulted by the offers they are getting right now.”

Tops in locations added. In his seminar at the NAED annual, Gillespie also presented his analysis of the companies that had added the most locations in recent years. His findings were as follows: Sonepar (161), Rexel (145), CED (103), Graybar (53), WESCO (26), GE Supply (25), Hughes Supply (22), McNaughton-McKay (13), and Crescent (11).

Most of these new locations were the result of acquisitions. But at least one company was starting up new branches at a rapid rate. Although Graybar Electric does make targeted acquisitions to enter new markets where it doesn't have existing facilities, most of its 53 new locations were start-ups.