Consolidation Of Independent Reps Gathering Momentum With Evolving Mix Of Alliances

Feb. 6, 2004
With a variety of alliances, independent manufacturers’ reps are aligning themselves to compete in a marketplace that often demands a larger presence.

With a variety of alliances, independent manufacturers’ reps are aligning themselves to compete in a marketplace that often demands a larger presence. When more than 150 independent manufacturers’ representatives from a variety of industries met in Tempe, Ariz., for an intensive five-day educational program in early January, one of the constants in their discussions was the impact of merger/consolidation activity. Whether it was the wireless communication, food service, electronics or electrical industries, the word was the same: Consolidation among reps continues at a rapid pace. According to a cover story in Electrical Wholesaling’s February issue, reps make the move to merge, consolidate and expand for several reasons:

• Achieve economies of scale

• Meet the ever-growing demands of manufacturers

• Follow the expanded “footprint” of customers that have grown through mergers/consolidations

Henry P. Bergson, president of the National Electrical Manufacturers Representative Association (NEMRA), Tarrytown, N.Y., says the consolidation trend with reps differs from what’s happening with manufacturers and distributors, where the big have continued to gobble up the small. One reason the rep community is consolidating in a different manner is the size of the firms, he says.

Oftentimes, Bergson says a rep merger will be based on the customer contacts of a few people in the two firms. The companies might have strengths in different market niches, and together want to provide a more robust package of products and services for customers, or are looking for more clout with manufacturers. In contrast, many of the larger distributors or manufacturers active in the acquisition game want to achieve a certain critical mass so they can spread costs across a wider base and operate more efficiently.

Bergson also says rep consolidation differs from what’s happening in other parts of the electrical market in that reps often don’t publicize a merger until they believe it’s working smoothly.

“The consolidation movement among reps is steady and constant,” says Bergson. “But some of the activity is rather subtle in nature and occurs under the radar scope. Others are major undertakings.”

Bergson says in one scenario, lines and/or personnel might move from one firm to another and the individual or individuals left behind may decide to go off in another direction. In a more traditional acquisition, where one rep firm takes over another, it can create massive organization.

Bergson sees two key variables driving the consolidation. He agrees more reps are expanding their coverage to adequately serve the needs of those customers that have grown regionally by acquisition. But he also sees a desire to obtain additional skill sets. For instance, this may happen when a commodity-oriented rep consolidates with a “spec-oriented” firm. “In order for each to gain the skill sets of the other, consolidation is an intelligent move,” he says.

While his firm is not currently merging or consolidating, Gene Biben, Joseph E. Biben Sales Corp., Philadelphia, Pa., achieved the growth that others seek by expanding his territory from the Philadelphia area to Baltimore/Washington, D.C. According to Biben, “We made the decision at the urging of manufacturers who pledged their continued support if we made the move. We were originally in that market when the agency was founded in 1961, but we left the area 18 years ago.”

Biben says while looking to expand his operations he had received offers to acquire agencies in different territories. “What it really came down to was the fact some of our key manufacturers asked us if we would go to the Baltimore/Washington area,” he says. “However, before we made the move, we spoke with electrical distributors and contractors in the territory to ensure that there was potential.”

The fact that the Baltimore/Washington area is adjacent to Biben’s Philadelphia territory and the efficiencies that could be realized by expansion were two other key factors. Biben says the company wasn’t looking for any new lines, and just wanted to sell more of what it already represented.

“Our inside people were looking for more business, he adds. “We already had great people in-house that were efficient and were good at what they did. We were looking to exercise more expertise from our associates than ever before. This move provided those opportunities. The time was right and everything came together for us.”

Ron Haedt, Electrorep, Inc., Sausalito, Calif., points to growing demands from manufacturers and the increased expense of operating a rep firm as reasons why he opened operations in Los Angeles four years ago.

“The unfortunate thing about operating a rep firm today is the demands that manufacturers put on us, such as increased inside-sales and order-entry responsibilities without increased commissions,” he says. “Because of this trend, being a rep has become a very expensive proposition.”

In Haedt’s opinion, one of the rep’s options is to grow either vertically or horizontally. “You can follow a course of staying within the traditional boundaries of your territory and growing by adding new business divisions or more lines,” he says. “Or, you can grow horizontally into a new territory. With the former you might grow to 25 or 30 lines. With the later, you work with a lesser number of lines, but grow business by doing a better job for your existing manufacturers in a new territory.”

One rep who has covered diverse markets in several territories is Fox-Rowden-McBrayer, Inc., Norcross, Ga.

“Almost since the inception of our agency, we’ve had a broader footprint than most rep firms,” explains Ken McBrayer, principal. “We’ve served the power utility, industrial, commercial and residential construction markets. In recent years, we have made a major move into telecommunications — both private and public networks.

“I haven’t spent much time studying the issue of mergers/consolidations among rep firms and comparing it to the rate of consolidation on the manufacturing side. However, it’s clear there are fewer manufacturers to represent today than ever before, and those manufacturers that remain are getting bigger and more demanding in the services they require of their reps. That means the rep must take a look at how they best can provide those services.”

“For many companies, it’s a matter of the rep adopting a survival mode. There’s also been pressure on the economy during the last few years, accompanied by pressure on our commissions. Some people in the market are struggling to find the right avenue to follow.”