Lindsay Young, Author at Modern Distribution Management

PVF distributors McJunkin Corp. and Red Man Tool and Supply will merge to form a $3-plus billion company. Private equity has a controlling interest in McJunkin, meaning the deal, to be finalized in September, is probably just the first of many steps in the companies’plans for growth.
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The recently announced merger plan between leading pipe, valve and fittings (PVF) distributors McJunkin Corp. and Red Man Tool and Supply highlights the impact private equity is having in distribution. The deal would form a $3-plus billion company and largest U.S. PVF distributor.

Goldman Sachs owns a majority share of McJunkin, which was family-owned and -founded. One industry expert says the share is close to 60 percent, giving Goldman Sachs a controlling …

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August 10, 2007

Free

Industrial Manufacturers to Grow International Sales

Pricewaterhouse Coopers released the results of its quarterly survey of industrial manufacturers, who have downgraded their growth expectations for the next 12 months, citing oil and energy costs and competition from foreign markets, as well as high interest rates and unfavorable exchange rates. On the U.S. side, 62% expect growth in the domestic economy.
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However, manufacturers are quite optimistic about the global economy, with 78% of respondents expecting growth over the next 12 months. This is not surprising based on earnings reports I see on a day-to-day basis; respondents expect their international sales to increase, on average, to 35% of total revenue …

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July 27, 2007

Finance

M& A at a Record High

Last week continued to be a blockbuster for M & A, with a strong showing by strategic players in the industrial and construction arenas: $400M Kendall Electric will buy $120M Roden</a>; Lewis-Goetz has acquired Samson Industrial</a>; and Saint-Gobain will purchase Norandex.

A recent survey shows that a record $2.7 trillion was spent worldwide on mergers and acquisitions in the first half of 2007 (story). Total mergers in the first half are 67% …

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July 23, 2007

Finance

A Busy Week in Acquisitions

This week has seen a good number of large and small acquisitions in the distribution and manufacturing world, along with an interesting move by cutting-tool supplier Kennametal, a change in the tech landscape, and a not-often-seen move by industrial/PVF distributors McJunkin and Red Man Tool and Supply.

McJunkin and Red Man have announced a merger of equals,” which means they will form one company with close to $3 billion in annual sales, but the CEOs will share leadership and the new company will have two headquarters (story).

According to Investopedia, a site I frequent, a merger of equals is …

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July 13, 2007

Legal Issues in Wholesale Distribution

High Court: Price Agreements Allowed

The U.S. Supreme Court has ruled for the manufacturer in a pricing case that pitted the supplier against a retailer. The decision could prompt more suppliers to consider minimum resale price-setting programs.

The U.S. Supreme Court in June made it easier for manufacturers to set minimum resale prices by overturning the per se” illegality of minimum resale price agreements.

Instead, the Supreme Court ruled that challenges to minimum resale price agreements or contracts will be judged on a case-by-case basis by the “rule of reason,” a more flexible legal doctrine that requires the challenger to prove price-setting was unreasonably anticompetitive and did economic harm.

“Per se” was a much stricter enforcement that assumed that minimum price setting …

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July 10, 2007

Building Materials/Construction

Home Depot Sells Off Supply Unit

After months of speculation, The Home Depot has agreed to sell its wholesale division, HD Supply, and bring its focus back to the performance of its retail core. Three private equity firms will buy the $12 billion unit.

The Home Depot, Atlanta, GA, has agreed to sell HD Supply to a team of private equity firms – Bain Capital LLC, Carlyle Group and Clayton Dubilier & Rice Inc. – for $10.3 billion, or roughly 10X-12X EBITDA. The firms are splitting the investment equally.

The sale has been expected for weeks now, with a number of private equity firms rumored to have bid for the unit and several to have bowed out due to the down housing market – one of HD Supply's core customer bases. HD Supply reported a decrease in organic sales in the recent …

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June 25, 2007

Companies

Takeaways from the $10B HD Supply Deal

Home Depot’s announcement that it is selling its wholesale division HD Supply for $10.3 billion to a trio of private equity firms -Bain Capital, Carlyle Group and Clayton Dubilier & Rice -is hardly a surprise, given the media coverage that led up to it. Though we don’t know all the details yet, there are already a few takeaways from the news:
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1. As Grainger President and COO Jim Ryan said in mid-May (Grainger: Consolidation is Changing Marketplace), just because HD Supply has been been sold does not mean that it disappears as a player in the market. Still, HD Supply’s new owners will have the same …

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June 20, 2007

Companies

Home Depot to Sell HD Supply for $10.3B (updated)

The Home Depot, Atlanta, GA, has agreed to sell HD Supply to a team of private equity firms -Bain Capital LLC, Carlyle Group and Clayton Dubilier & Rice Inc. -for $10.3 billion, or roughly 10X-12X EBITDA.
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The sale has been expected for weeks now, with a number of private equity firms rumored to have bid for the unit and several to have bowed out due to the down housing market -one of HD Supply’s key customer bases. HD Supply reported a decrease in organic sales in the recent quarter.
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For that reason, the firms likely paid closer to 12X EBITDA, according to Jim Miller, principal and a managing director at investment banking firm Vetus Partners, Cleveland, OH. When they started this process, I believe they were touting approximately $1 billion of EBITDA …

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June 19, 2007

Economic Trends

Fuel Costs Hit Distributors’ Bottom Lines

Fuel costs have hit a record high in the past month, staying above $3 a gallon, and that is causing no shortage of headaches in the distribution world. Past surveys done by MDM in collaboration with Channel Marketing Group, Raleigh, NC, indicate that many distributors simply pass on the increased fuel costs to customers. (Stem the Tide: Rising Fuel Costs, MDM, May 25, 2006)

Distributors have implemented a fuel surcharge or service change for deliveries, increased existing charges, or implemented a delivery charge on orders under a minimum-dollar value. Some are integrating the added cost into the product price.

In light of higher fuel costs, look at your current minimum order size. Should it be …

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June 12, 2007

Sales & Marketing

Regain Pricing Control

As customer bases shift, competition intensifies and commodity prices seesaw, it's more crucial than ever for distributors to maximize profitability by magnifying the value they provide for their customers and not competing on price alone. Increasing prices by 1 percent without hurting volume can improve profits as much as 11 percent, according to one pricing consultant.

Distributors looking to boost profitability and refocus on value should analyze and redesign their pricing strategy.

"If a sales force is out negotiating deals, there's very little control. They come back and say, 'I've got a deal at $90. I know our price is $100, but if we don't give them $90 we won't get the deal.' And everyone feels as if they are being held for ransom, says …

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May 10, 2007

Management

Changing Channels, Part 2

This article is available to non-subscribers through online access below, or by purchasing the series, Changing Channels, in the MDM Store.

As reported in Part 1, tension between manufacturers and distributors has always been there -but the reasons for that tension have changed. Channel partners are navigating a new frontier that includes private-label branding, converging channels, pricing conflicts, the push of big-box retailers and national accounts into their back yards, and a changing customer base. In Part 2 of this article, we address best practices in manufacturer-distributor relationships.

One answer to manufacturer-distributor conflicts, MDM found in interviews for this article, is that distributors must focus on creating value for the customer and the supplier by homing in on core competencies. And manufacturers must find a balance of trade between high-volume distributors, integrated …

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April 25, 2007

Management

Changing Channels

This article is available to non-subscribers through online access below, or by purchasing the series, Changing Channels, in the MDM Store.

While the basic concepts for effective channel management haven’t changed, new competitive pressures have changed the focus to channel profitability. Here’s an analysis of the key shifts taking place in independent distribution channels. Part 2 of this article will outline manufacturer-distributor emerging best practices in channel management.

Relationships between manufacturers and distributors have been a topic of conversation at conventions for decades. The tension has always been there,” says Marshall Jones, a past president of the Specialty Tool and Fastener Distributors Association. “But the sources of that tension have changed.

Distributors and manufacturers are navigating uncharted territory and areas that until now maintained some …

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April 10, 2007

Companies

Technology Case Study: Graybar’s Lessons Learned

Electrical distributor Graybar rolled out its new IT system in 2003-2004; the three-year implementation was anything but easy for the $5 billion company. But CFO Beatty D’Alessandro, who oversaw the implementation, says distributors can mitigate the risks inherent with such a transition. Here’s how.

Most distributors who are implementing or even considering switching to a new business system may place too much worry on whether the technology will work and what it will cost but not enough on other risks inherent with the transition.

The fact of the matter is if you’re with a name-brand software company, the technology is going to work. This is not splitting the atom or curing cancer -we’re talking about billing material, and shipping material, and …

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March 25, 2007

Research & Analytics

Going Global

This article details two mid-sized distributors' experiences with global sourcing and is adapted from presentations at the National Association of Wholesaler-Distributors' annual meeting, with additional information provided through follow-up interviews with MDM.

To use a cliché, the devil is in the details. Andrew Berlin, president of Berlin Packaging, says this has never been truer than when sourcing from China.

And one more cliché," he says. "You get out of it what you put into it."

Berlin should know. He's been sourcing from China for his customers and suppliers for almost 20 years, and understands the value of taking the time required to set up a profitable transaction rather than …

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March 10, 2007

Research & Analytics

Case Study: Outsourced Billing

In the mid-1990s, Mayer Electric Supply, Birmingham, AL, prepared and mailed its invoices and statements in-house. The distributor had employees who printed the mailings on high-speed printers at night and used a machine to fold and stuff the mailings. It also maintained a Pitney-Bowes postal machine.

It was quite a cost factor to do all of that, says Mayer Electric CIO Barry Carden.

So Mayer started looking at outsourcing its paper billing. The electrical distributor, which serves mostly the Southeast U.S., found a provider in 2001. Despite a few issues – like some double mailings – the service worked well and saved Mayer time and money. But that company was sold to a larger corporation, which decided to cut smaller customers out of the mix, including …

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February 25, 2007

Finance

Strategic Pushed by Public Pressure

Strategic Distribution will soon shed the costs of public ownership when it sells to Platinum Equity. The two-year decision-making process was explained for shareholders in an SEC filing last month. MDM distills the details in this article.

Competitive pressures, a history of operating losses, limited stock liquidity and trading volume, and the cost of complying with Sarbanes-Oxley all played a part in leading Strategic Distribution to give up the public life and agree to sell to Platinum Equity for $10 a share, or $30 million, last month.

An SEC filing in late January details Strategic’s decision to go private. In addition to selling the company, management also considered a liquidation of Strategic’s assets.

Several suitors took up …

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February 10, 2007

Subscriber Only

Technology Case Study: Routing Costs

Beacon Electric Supply in Southern California implemented a fleet management system to increase the number of deliveries drivers could make in a day. The system has also helped Beacon improve customer service levels and keep salespeople apprised of issues at the delivery site.

At Beacon Electric Supply Inc., San Diego, CA, the burden of making deliveries on time used to lay on the drivers. They would get a pile of orders and it would be up to the drivers to best determine the routes, says CFO Dan Vivier. They supposedly knew their areas better than anyone else.”

While that was true, fingers were inevitably pointed at the driver whenever something went wrong with a delivery.

So Beacon implemented a fleet management software package from RouteView a …

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