By Bridget McCrea
Last week, Anixter International Inc., (NYSE: AXE) announced that it was acquiring the Power Solutions segment of HD Supply (NASDAQ: HDS) for $825 million. As the largest acquisition in Anixter’s history, the deal – which is expected to close near the end of the third quarter of 2015 – should result in future tax benefits from acquired U.S. intangible assets with a net present value estimated to be approximately $70 million.
Brent D. Rakers, CFA, senior analyst-industrial distribution with Thompson Research Group in Nashville, calls the deal a “strategic game changer for Anixter.” The most attractive transaction points include the fact that combining electrical and datacomm platforms has worked for similar companies in the past. In particular, he points to Wesco’s 2006 acquisition of Communications Supply (CSC), which “created a different competitive environment, as the combination bundled electrical and datacomm packages to customers on project business.”
“During the past five years, this bundled offering in part has allowed Wesco to outgrow Anixter by 400 bps annually in datacomm,” Rakers points out, adding that the combination of power solutions with Anixter’s wire and cable business strengthens both entities. He expects Anixter to “stay aggressive” in filling out meaningful gaps in HD Supply’s electrical branch network. “Given geographic gaps in HD Supply’s electrical products reach,” Rakers says, “we believe Anixter management will engage in an aggressive future acquisition strategy to build out a national network.”
An Interesting Transaction
Headquartered in Atlanta, 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 four Canadian provinces, Power Solutions reported fiscal 2014 revenues of $1.9 billion and adjusted EBITDA of $79 million.
“The Anixter-HD Supply deal is an interesting transaction,” says Rakers. In looking at the successes that Wesco had when it moved into the space with the CSC acquisition – and followed by a couple of supplementary transactions after that within the broader datacomm space – “there is certainly a proven value to combining a datacomm with an electrical products platform,” he adds.
From the deal, Rakers says Anixter is getting a “regional electrical products network” that could lead to both organic growth and more acquisitions in the future. “Certainly Anixter’s very deep as a specialty and cable provider, but it [lacks] some of the full line that HD brings to the equation,” says Rakers, who points to HD’s utilities business as one of the distributor’s more unique attributes. “I don’t necessarily think there’s as much natural crossover between a full-line electrical shop or a datacomm operation and the utilities business.”
In assessing the impact of this deal on the electrical product space, Rakers says that right now there are 5-7 large, national distributors that each do over $1 billion of sales annually. “That’s a very large marketplace,” he continues. “I think the ability of this particular niche of overall distribution to get involved with large marketing/buying [groups] may level the playing field a bit more for the smaller local distributor, compared to some of the other specialty categories that I follow.”
The Cross-Selling Advantage
Ultimately, Rakers says Anixter’s acquisition puts the company in the advantageous position of being able to cross-sell products across more categories and customers (datacomm with electrical supplies, for example).
“Certainly, it would be more attractive if you could cross over more [among] the utilities/electrical side as well; I think that’s where one-plus-one is worth a little bit more than [two],” says Rakers. “For companies that are trying to compete on project-type business, and if there really are those [distributors] out there that compete for this project size, that could be a significant competitive threat.”
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McCrea is a Florida-based writer who covers business, industrial, and educational topics for a variety of magazines and journals. You can reach her at bridgetmc@earthlink.net or visit her website at www.expertghostwriter.net.
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