Mike Miazga 2015-08-10 03:11:47
IN THE SECOND OF A TWO-PART SERIES, BUYING GROUP EXECUTIVES DISCUSS CONSOLIDATION AND THE FUTURE OF THEIR ORGANIZATIONS. Yes, consolidation is very real in today’s industry — and based on the comments from eight PHCP-PVF buying group executives that trend is here to stay for the foreseeable future. In the second of a two-part series on buying groups, executives discuss not only consolidation, but where they see their organizations headed in the near future. Part 1 in the series appeared in the July issue and can be accessed by visiting www.supplyht.com. “Consolidation is affecting our group,” Affiliated Distributors PHCP Division President Jeffrey Beall says. “We have been fortunate that most of our distributors have been acquirers. There are a lot of crazy things still going on out there. We have strong distributors we think could be targets to be acquired, but we are blessed with people who are very passionate about and committed to the independent distribution business and will continue to invest in their businesses, people and facilities.” Buying group executives say there are a number of underlying factors that are contributing to the spike in consolidations of late. “Money is so cheap right now,” Forte Executive Director Tom Cohn says. “It’s an easier way to grow. It’s easier to buy an established business and make it successful. There is a lot of available cash out there right now not only internally but from the investment banking community. When you can’t get any interest in the bank, you look for ways to put the money to work to provide a better return.” Equity Plumbing Vice President of Marketing Ted Havel adds: “The cost of making an acquisition today is such that a larger regional or national distributor looking to expand into a new market can do so more cost-effectively by acquiring a larger multi-location independent in a given market as opposed to purchasing multiple smaller locations with different lines and software systems.” Havel says Equity is beginning to see some consolidation between similar-sized mid-size to smaller independents in the group. The company addressed this by introducing its “Equity First” program that provides a means for potential buyers and sellers to confidentially review respective profiles and request introduction by the Concord, Ohio-based buying group. “As a result, consolidation has had a negligible impact on our business,” he says. Beall adds on top of the availability of money the relative steadiness of the industry contributes to a perfect consolidation storm of sorts. “The independent PHCP world is fairly reliable and stable,” he says. “Money is cheap and available and people are looking for good returns. It’s a steady business to invest in and attractive for funds and portfolios to own, but that is all the more reason people in the business want to stay in the business.” WIT & Co. Executive Vice President and Chief Operating Officer Charlie Moorhead notes consolidation hasn’t been limited to only distributors. “The large number of acquisitions and consolidation within the vendor community is just as noteworthy, if not more so,” he says. “Years ago, groups primarily were dealing with U.S.-based and -owned companies. Many of the relationships between a distributor principal and key managers of their major suppliers were much more personal than they are now. Today it’s common for a buying group to deal with offshore owners, brokers, private equity firms and major corporations on the supplier side. Many of these new companies put much more emphasis on metrics than they do on relationships and may not see or understand the advantages of being part of a buying group. It’s up to us to show these manufacturers that we do indeed bring value to their products and to the distribution channel.” Executives feel succession planning also is factoring into the acquisition uptick. “Too few of these entrepreneurial businesses have a wellarticulated ownership transition plan,” Cohn says. Moorhead adds: “Simply put, distribution consolidation will continue and the vast majority of the time will be driven by the lack of a viable succession plan of the acquired distributor. Money is inexpensive right now and valuations are much more reasonable than they were 10 years ago. Larger, well organized and well-run distributors will continue to acquire other independent distributors.” Phil Knipper, who heads industrial PVF buying group Delta Distributors, agrees the industry hasn’t seen the last of these transactions. He notes his group has lost two distributors in the last decade to consolidation but later replaced them. “The national firms will continue to expand and other distributors will continue to expand and add branch locations,” he says. “It’s a fact of life. You will see more acquisitions because of the cost of funds. However, there are some that want to maintain that independent, private ownership. We have a lot of second- and third-generation members. But the acquisitions and mergers won’t stop.” THE FUTURE Embassy Group President Mike Lepley says consolidation is a concern, however much of Embassy’s growth has come from its own members’ acquisitions. “Some may see consolidation as a problem because the nationals are buying them up. We see consolidation as an opportunity to help, support, develop and foster this growth within our own membership. We have a very strong group of independents partnered with a world-class vendor base. Our function is to help assist the growth of our shareholders and endorsed vendor partners.” Executives of the two luxury products/ decorative plumbing and hardware buying groups say their sector of industry is facing unique challenges — thus amplifying the vitality of belonging to a buying group. “On the showroom side, buying groups will continue to be important,” Luxury Products Group Executive Director Linda Hoff says. “Especially on the showroom side, smaller companies don’t have the power a wholesaler does and they need purchasing power and rebates. Showrooms will realize they need to be in a group to stay in business and stay competitive. As the showrooms grow, buying groups will become larger and more powerful as well.” In Forte’s case, Cohn says the group’s proactivity with its members concerning products and services will be the ultimate difference-maker. “Controlling distribution for our guys through lines that are exclusive and semi-exclusive will be important as will providing an information network that will help them with their businesses and provide the tools to help make them successful in their businesses.” Despite a constantly changing and competitive landscape, Omni President Bob Hoff says the future of buying groups and independent distributors is an extremely bright one. “Is the independent doomed? Absolutely not,” he says. “There is a reason the group concept works. A lot of people when they think of a buying group think of group purchasing. That’s only one aspect. 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