- Record Material Price Increases Pound Industry Again.
Few people thought the price increases the construction market saw in 2004 would be duplicated in the near future. Wrong. Although pricing for core construction elements such as gypsum, cement and lumber simmered down after 2004's wild ride, the price of copper has once again astounded the experts. Just when wire and cable industry veterans said the price of copper wouldn't climb any higher, this fickle metal proved them wrong. At press time, the price for copper was a record $1.94 per pound. Metal market analysts believe China's apparently insatiable appetite for copper, speculation and production lulls are responsible for the record prices. At least one analyst expects copper prices to drop significantly in 2006, as new mining capacity comes on line. A Financial Times report said HSBC analyst Alan Williamson sees a 14-percent decline in copper prices in 2006, followed by another 14-percent decline in 2007.
The record price increases in copper probably didn't draw as much attention in 2005 because of the situation in the PVC market, where the cost of oil-based elements used in the PVC manufacturing process went off the charts after Hurricane Katrina shut down several key manufacturing plants. These days, distributors, manufacturers and reps wonder if they can get any PVC pipe, not when. And when PVC pipe is available, it's at a hefty price increase. Michele Halickman, an economist who tracks construction material pricing for Global Insight, Washington, D.C., says PVC prices are up 18 percent year-to-date in 2005, and will increase another 16 percent in 2006 before starting to descend in fourth-quarter 2006.
- Home Depot Paints More Markets Orange.
With $72 billion in annual sales, almost 2,000 stores in the United States, Canada and Mexico, and miles of aisles packed with electrical products, Home Depot, Atlanta, has always been the 500-pound orange gorilla that can't be ignored by the electrical distributors who compete against the company, and the manufacturers who want to figure out a way to sell to the company without infuriating too many of their distributors.
Home Depot elbowed its way back into electrical market news in late 2005 because of rumors that it wants to buy Hughes Supply Inc., Orlando, Fla. While the acquisition of an electrical distributor the size of Hughes (ranked as the 8th largest electrical distributor on EW's Top 200 listing, with $925.4 million in electrical sales) would certainly shake up the electrical business, it's just the next step in market expansion for Home Depot.
Because Home Depot will eventually run out of key markets in which to build new retail stores, over the past few years the company has turned its attention to the business-to-business market by serving professional customers through its Home Depot Supply division. It has built this business through strategic acquisitions in a broad front of markets, including lighting, plumbing and construction materials. Its 2005 acquisition of Montreal-based Litemore, Canada's largest lighting distributor, gave the company additional clout in the lighting market north of the border. Home Depot made a similar acquisition in July 2005 with its purchase of National Waterworks Holdings Inc., the nation's leading distributor of products used to build, repair and maintain water and wastewater transmission systems. National Waterworks, Waco, Texas, has $1.5 billion in 2004 sales and 130 branches in 36 states. In 2005, Home Depot also acquired the 17-location Williams Brother Lumber Co., Suwanee, Ga.
Don't forget Home Depot's existing distribution businesses that focus on the construction trade. At the end of the third quarter, tool and hardware specialist White Cap Construction Supplies Inc., Santa Ana, Calif., which Home Depot acquired in 2004, had 94 branches in 23 states, and is on a major acquisition binge of its own.
Another example of Home Depot's expansion beyond the retail market is its Builders Solution Group, the installation business it built through acquisitions of specialty contractors in flooring, roofing, gutters and counter tops. This division grew 21 percent to $1.2 billion during the third quarter.
- Hughes Supply is in the News Both as an Acquisition Candidate and as an Acquirer.
One of the reasons Home Depot reportedly has interest in Hughes Supply is its aggressive acquisition campaign over the past two years in the maintenance, plumbing and utility markets. In 2005, Hughes Supply purchased TVESCO Inc., Memphis, Tenn., a well-known utility specialist that ranked as the 38th largest distributor of electrical supplies on EW's Top 200; Ram Pipe and Supply Inc., a distributor of plumbing, water and sewer products in Yuma, Ariz.; and National Construction Products Inc., an Atlanta-based distributor of construction materials. These deals followed the company's 2004 acquisitions: Century Maintenance Supply Inc., Stafford, Texas, a MRO specialist; Standard Wholesale Supply Co., Las Vegas, a distributor of waterworks, plumbing and electrical products; Todd Pipe and Supply, Hawthorne, Calif., a Southern California plumbing distributor; and two utility specialists, Southwest Power, Sante Fe Springs, Calif., and Western States Electric, Portland, Ore.
Industry observers believe the Century Maintenance Supply acquisition would fit nicely with Home Depot's Maintenance Warehouse business, now under the Home Depot Supply banner. It's interesting to note that electrical sales only account for approximately 10 percent of Hughes Supply's $4.42 billion in 2005 sales. That's roughly comparable to the company's utility sales, but less than half of its plumbing and HVAC sales, which account for 24 percent of annual sales.
- The Electrical Industry is in the Thick of the Recovery Efforts for Hurricanes Katrina and Rita.
Electrical distributors, manufacturers and reps are busy supplying products to restore electrical systems on the Gulf Coast and with their volunteer and charitable efforts. Although it's tough to put a dollar amount on the donations by electrical companies, the charity exhibited by dozens of companies is truly inspiring, and makes one realize that we really do work in an electrical community that in times of need watches out for its own. For an updated list of the many acts of charity by companies in the electrical business, check out www.ewweb.com.
Even though Hurricanes Katrina and Rita are starting to fade from the headlines and public consciousness, the electrical industry presses on. It's part of the industry's DNA to be in the game deep and early in any rebuilding process. Think about every light that flickers on in a New Orleans neighborhood, each motor that powers up in a Gulf Coast factory, or each air-conditioning unit that finally turns on in a home. Without someone in the electrical wholesaling industry doing his or her job during the recovery efforts, none of it would happen.
- Private Equity Firms Target the Electrical Market.
Judging from the number of calls Electrical Wholesaling's editors field from private equity firms researching the electrical business, or searching for executives to lead their charge into this industry, private-equity funds flush with cash are watching not only the electrical wholesaling business but also distributors of many different stripes in the wholesale-distribution industry with more than casual interest.
It's just a matter of time before one swoops into the electrical business and makes a big acquisition. As an industry, the wholesale-distribution channel accounts for 7 percent of the United States' private gross domestic product and employs one in 20 U.S. workers, according to Adam Fein, president, Pembroke Consulting, Philadelphia. Although the profit margins in the distribution business probably won't excite Wall Street investment bankers used to high-profile deals in the consumer or retail markets, it's still somewhat surprising that more private equity firms haven't taken as much interest in this business.
An early deal in this industry by a private equity firm was the 1994 acquisition by Clayton Dubilier and Rice Inc. (CDR), New York, of WESCO from Westinghouse Electric Corp., Pittsburgh, Pa. Last year Rexel SA, the largest electrical distributor on the planet, was purchased by a consortium of international investment bankers, including CDR.
But this time around, the amount of money flowing that private equity firms have to spend on acquisitions is enormous. A recent New York Times article said these companies now have a combined total of $2 trillion in purchasing power. The article said this war chest was pumped up in part by $491 million that large institutional investors such as pension funds have poured into private equity funds looking for better returns than what they can get in the stock market. The investment funds would want to make a tidy profit on any of their purchases in the electrical market, either by taking it public or reselling it. If private-equity acquisitions become more popular in the electrical business, when distributorships are put back on the selling block by their investors looking to cash in on their investments, it could really change the industry as we know it.
- Rumors are Starting to Swirl on Other Potential Acquisitions of Large Regional Distributors.
Sonepar's purchase of Stuart C. Irby, Jackson, Miss., rumors of Home Depot's interest in Hughes Supply, and reports of private-equity firms courting electrical distributors make one wonder if the electrical industry is on the threshold of a new round of super-sized acquisitions. Although most of the 2005 acquisitions listed on page 28 were relatively small, the stage may be set for some sizeable acquisitions by companies from inside or outside the business that would use the purchases of electrical distributors with large regional footprints to quickly build a national presence.
- Luxury Condo Construction Pumps up an Already Overheated Housing Market.
One of the fastest-growing segments of the housing market is the construction of new luxury condo towers in downtown locations. The sheer size of these projects is astounding. Developers plan to build the world's largest residential condo tower in Miami, the 1,000-unit Empire World Towers, and Donald Trump is expected to open the 50-story Trump Plaza in Jersey City, N.J., in 2007. The New Jersey project will have more than 800 condos, and the Trump Tower now being built in Chicago will have an estimated 472 residential condominiums. A few blocks away, the Waterview Tower hotel/condo project, slated to open in 2009, will offer 200 hotel rooms and 233 swanky residential condos. Another big project is the $800-million Fan Pier project on Boston's waterfront. It's approved for construction in 2006 and will include 675 residential units.
However, when you read past the glossy developer brochures, you may find that in some markets, buyers are only interested in these condos as investments. An estimated 25 percent of new condos built in the Miami market will be owned by investors who have no intention of ever living in them. Economists are concerned that once the bubble bursts, as it almost certainly will when too many investors decide to cash in at the same time, prices of these condos will crash faster than an elevator in free-fall. You will hear the howls of pain from Miami condo towers along the Atlantic Ocean to downtown Chicago.
- Acquisitions Abound Among Manufacturers and Software Vendors.
Southwire Co., Carrollton, Ga., made the biggest acquisition of the year with its purchase of the Essex Electrical Products building wire operations, based in Fort Wayne, Ind. The company also acquired DeCorp Inc., Hendersonville, Tenn., for its Flatwire technology. In other wire and cable business news, General Cable Corp., Highland Heights, Ky., announced plans to buy the high-voltage cable business of Safran SA, Montereau, France, and Encore Wire entered the MC cable market with a 150,000-square-foot manufacturing facility in McKinney, Texas.
Another industry segment that's seeing a wave of acquisition activity is distribution software. Not all that long ago, names like Activant, Intuit and Infor wouldn't have meant much to most electrical distributors, but those companies now own the largest distribution software vendors — Eclipse, Prophet 21, Trade Service Systems (now owned by Prophet 21) and NxTrend. The round of acquisitions that started in the IT market last year continued in 2005. Activant Solutions, Austin, Texas, bought Prophet 21 Inc., Yardley, Pa., and Speedware Corp., Montreal, with its Prelude Systems software; and Softcare Computer Consulting Co., Pittsburgh, bought the FACTS business unit of Cleveland-based Application Resources Inc. The Trade Service management team also announced plans to buy the business back from i2 Technologies, Dallas.
Other major acquisitions include the move by Square D/Schneider Electric, Palatine, Ill., into the lighting fixture business with its purchase of Juno Lighting Inc., Des Plaines, Ill., and its acquisition of Power Measurement Inc., Victoria, British Columbia. Legrand, West Hartford, Conn., added to its portfolio of residential structured wiring assets with its purchase of On-Q Home, Harrisburg, Pa.
Rounding out the major acquisitions in 2005, Fluke Corp., Everett, Wash., continued its acquisitive ways with its purchases of Infrared Solutions, Plymouth, Minn., and LEM Instruments, Liverpool, United Kingdom; and Bain Capital acquired FCI Connectors, Manchester, N.H. Siemens Energy & Automation Inc., Alpharetta, Ga., bought Robicon Corp., New Kensington, Pa., while another Siemens' division, Siemens Communications, bought Myrio Corp., Kirkland, Wash., to expand its product offering in the home entertainment market. Thomas & Betts, Memphis, Tenn., purchased Southern Monopole and Utilities Co., Birmingham, Ala.
- Electrical Contractors' Roll-Ups Continue to Evolve.
Think back to the late 1990s. Remember the industry wags who predicted national contractor roll-up firms were going to revolutionize the electrical contracting business? These national roll-ups have experienced varying degrees of success.
Emcor, Norwalk, Conn., is doing well. Electrical business accounts for approximately 25 percent of Emcor's $4.2 billion in sales, and the company continues to prosper. Emcor's well-balanced portfolio of contracting services also includes HVAC and mechanical system contracting. Quanta Services Inc., Houston, is gaining favor on Wall Street after a few rough years. Formed in 1997 through an IPO, Quanta acquired 85 specialty contractors as it built a niche in the telecommunication, cable television and utility markets.
Encompass, formed through the 2000 merger of Group Maintenance and Building One, two contractor roll-ups that focused on electrical HVAC, mechanical and other building services, filed Chapter 11 in 2002, and has sold several businesses back to local contractors. Integrated Electrical Services (IES), Houston, has been in the news in 2005 as it struggles to gets its finances in order. Part of the reorganization is the sale of at least 11 contracting firms back to the original owners. IES had built up a formidable network of electrical contractors across the United States in the late 1990s, but the company ran into financial difficulty when the economy soured in 2000.
The consolidators lured dozens of electrical contracting firms with offers of stock options and the centralization of back-office operations such as MIS, accounting and purchasing that were a headache for many smaller companies. On paper and in PowerPoint, it sort of made sense. In the real world, investors didn't buy into the concept, and the efficiencies of centralization of back-office functions often didn't go smoothly because computer systems couldn't talk to each other. Throw in the dot-com bust, which torpedoed many of the consolidators' national account contracts with telecommunications firms with the 2000-2002 recession and things got ugly real fast.
- Who's Who at the Zoo
Several manufacturers made some major promotions in their executive teams. Following are some of the moves that made news in 2005. At EGS Electrical, Rosemont, Ill., Ron Orcutt became president of the electrical construction materials division, George Mulligan was named president of the Sola/HeviDuty business unit and Andy Schwegel was promoted to vice president of marketing for the electrical construction materials group. At Cooper Industries' Cooper Connection, Houston, Randy Ribbing was promoted to vice president, sales and marketing, and Paul Isabella was appointed executive vice president.
Several senior executives at Leviton Manufacturing Co. Inc., Little Neck, N.Y., took on new responsibilities. Donald Hendler was appointed president; Stephen Sokolow was appointed vice chairman of the board of directors; Bill Marshall was appointed senior vice president of sales and marketing; and Daryoush Larizadeh was named senior vice president.
In other manufacturer news, Merle Bassett joined Providence Pipe Products, Canyon Country, Calif., as national sales manager; Glenn Grunewald was named president and CEO of Simkar Lighting, Philadelphia; and Evan Gaddis became president of the National Electrical Manufacturers Association (NEMA), Rosslyn, Va., replacing Malcolm O'Hagan, who retired. James Campbell was named president and CEO of GE Consumer and Industrial, Fairfield, Conn.; and Lavon Winkler became COO, Milbank Manufacturing Co., Kansas City.
At Halco Lighting Corp., Atlanta, Kim Cook was promoted to COO and Bob Ruggiero was named vice president of sales. In other personnel changes, Carl Pickard was named president of the industrial division at Fluke Corp., Everett, Wash.; John Morgan was named president and CEO for Acuity Brands Lighting, Atlanta; and Joe Wilson was promoted to vice president and general manager for Federal Signal Corp.'s Federal Early Warning Systems group, based in University Park, Ill.
Several veteran distributors and reps joined new companies in 2005. Don Block joined Ralph Pill Electric Supply, Boston, as vice president of sales but then moved to Northeast Electrical Distributors/Sonepar, Canton, Mass., as president; Doug Walo joined Stuart C. Irby Co., Jackson, Miss., as vice president of commercial and contractor sales Mike McManus moved into the rep world from Pass & Seymour, with his new role as principal and officer for Integra Sales, Rochester, N.Y. Rick DeFazio joined Brazill Brothers and Associates, Metuchen, N.J., after 17 years with Electric Sales Unlimited, Sante Fe Springs, Calif.; and Barry Goldberg became senior vice president and general manager at Beacon Lighting and Supply, Hartford, Conn., after years with GE Supply, Shelton, Conn.
In other major distributor personnel news, Mike Dudas became president of Cooper Electric Supply Co., Tinton Falls, N.J.; Nancy Collat Goedecke was appointed vice chairman at Mayer Electric Supply Co., Birmingham, Ala.; Scott Lawhead became vice president and chief financial officer at The Hite Co., Altoona, Pa.; Tim Fries joined Wiseway Supply, Florence, Ky., as vice president of sales and marketing; and Neal Keating joined Hughes Supply, Orlando, Fla., as COO.
At Border States Electric Supply, Fargo, N.D., Tammy Miller was appointed president; Greg Thrall became senior vice president and Gary Miller became executive vice president. John Hanna became executive vice president and COO at Fromm Electric Supply Corp., Reading, Pa.; Daniel McLaughlin became president and CEO at Benfield Electric Supply, White Plains, N.Y., and Roy Kohli was appointed chairman; Rob Giola was appointed vice president at Leslie Osterman Associates, Syracuse, N.Y.; and Eddie Gibbs became vice president of vendor relations for WinWholesale, Dayton, Ohio.
We pay respects to these industry leaders who have passed away during the past 12 months:
Don Ambrose, WESCO Distribution Inc., Pittsburgh; John Appleton, Appleton Electric/EGS, Rosemont, Ill.; Doe Brownlee, Missouri Valley Electric, Kansas City; Richard Buzun, Siemens Energy & Automation, Alpharetta, Ga.; Alfred Caneveri, Edwards Signaling, Cheshire, Conn.; Thomas Cox, Dominion Electric Supply Co., Arlington, Va.; Charles Currie, North Star Lighting, Broadview, Ill.; Chuck Guttadore, EMCORP, Columbus, Ohio; Carl Hall, Graybar Electric Co., St. Louis; Rodney Heindel, Schaedler Yesco Distribution, Harrisburg, Pa.; Ernest Isenberg, Western Extralite Co., Kansas City; Al Levin, Levin and Associates, New Orleans; Joe Maddux, Maddux Supply Co., Greensboro, N.C.; Sonny Nisbett, Donald J. Hickey and Associates, Novi, Mich.; Terry Nykiel, Sylvania Lighting, Danvers, Mass.; JoLynn Rogers, Ideal Industries Inc., Sycamore, Ill., and Square D Co., Palatine, Ill.; John Sedlacek, Challenger Electrical Equipment Corp., Pittsburgh; Margaret (Stott) Waltersdorf, Tristate Electrical Supply, Hagerstown, Md.; Gil Venturelli, Regal Manufacturing, City of Industry, Calif.; Jack Vilett, Northland Electric Supply, Minneapolis; and Charles Womack, Womack Electric Supply, Danville, Va.
|Infast Group plc||Birmingham, United Kingdom||Anixter|
|Nunn Electric Supply Corp.||Amarillo, Texas||Border States|
|Allstar Electric Supply||Kenosha, Wis.||Brook Electrical/Sonepar|
|ABS Supply||Fulton, Mo.||Butler Supply Inc.|
|Sunray Lighting||Irvine, Calif.||Candela Corp.|
|Cedar City Electric||Cedar City, Utah||Codale Electric Supply Inc.|
|Providence Electric Supply||Collegeville, Pa.||Colonial Electric Supply|
|Cain Electrical Supply||Big Spring, Texas||Consolidated Electrical Distributors (CED) Inc.|
|J.D Daddario Co. Inc.||Franklin, Mass.||Ferguson Enterprises|
|Meckco Supply Co. Inc.||Charlotte, N.C.||Ferguson Enterprises|
|Harrisburg Electrical Supplies Co.||Harrisburg, Pa||Fromm Electric Supply|
|Litemore||Montreal, Que.||Home Depot|
|Ram Pipe and Supply Inc.||Yuma, Ariz.||Hughes Supply Inc.|
|TVESCO (Tennessee Valley Electric Supply Co.)||Memphis, Tenn.||Hughes Supply Inc.|
|Todd Pipe & Supply||Hawthorne, Calif.||Hughes Supply Inc.|
|Service Electrical & Industrial Supply||Leominster, Mass.||NESCO|
|Stuart C. Irby branch location||Kingsport, Tenn.||Roden Electric|
|Tuscaloosa Electric||Tuscaloosa, Ala.||Roden Electric Supply|
|Stuart C. Irby Co.||Jackson, Miss.||Sonepar USA|
|Connecticut Electric||Meriden, Conn.||Standard Electric Supply|
|Cookeville Electric Motor||Cookeville, Tenn.||Stuart C. Irby Co.|
|Roden Electrical branch location||Huntsville, Ala.||Stuart C. Irby Co.|
|Carlton-Bates||Little Rock, Ark.||WESCO International|
|Noland Co.||Newport News, Va.||WinWholesale|