Here are the trends and news that made headlines in 1998.
Along with the usual onslaught of mergers and acquisitions, 1998 saw the first signs of the economy cooling down after an amazing run, as well as continuing interest in integrated supply, tangible progress on the electronic commerce and plenty of reminders of just how global the economy in general and the electrical industry in particular have become.
WESCO: Warp-speed growth on a broad front of markets
Over the past few years, WESCO Distribution, Inc., Pittsburgh, Pa., has moved further, faster and in more different directions than any other electrical distributor in recent memory. Through 14 acquisitions over the past four years, the company has added $1 billion in sales, taken on 1,000 new employees and added close to 80 locations. The company's acquisitions this year of specialized distributors in the integrated-supply and control systems for the retail market add to its broad market focus.
Even a few years ago when acquisition kings like Consolidated Electrical Distributors, Inc. (CED), Westlake Village, Calif. and All-Phase Electric Supply Co., Benton Harbor, Mich., were gobbling up family-owned electrical distributorships by the handful, seldom were the deals as diverse or as large as those WESCO has engineered. The company grabbed plenty of headlines over the page few years by acquiring well-known independent distributors such as Ace Electric Supply Co., Jacksonville, Fla.; Avon Electrical Supply, Hauppauge, N.Y.; Brown Wholesale Electric Co., Los Angeles, Calif.; EESCO, Inc., Chicago, Ill.; Murco, Inc., Monroe, La.; Reily Electrical Supply, Metairie, La.; Standard Electric Co., Bangor, Maine; and Nevada Electrical Supply, Las Vegas, Nevada.
During this time the company has become a player in the datacom market; built a strong presence in the integrated-supply market, particularly with this year's acquisition of Bruckner Supply Co., Port Washington, Pa.; established a position as the country's largest electric utility distributor thr ough acquisition of several utility specialists; and bought control-panel builder WR Control Panels, Inc., Columbus, Ohio. The WR Control Panels acquisition is an interesting move for WESCO because it meshes nicely with its focus on national accounts. WR Control Panels sells integrated lighting control and distribution equipment in a single package for multi-site retailers such as restaurant chains and department stores.
In 1998, WESCO also found itself in the middle of a feud with Rockwell Automation over its acquisition of Reily Electrical Supply. Rockwell did not offer WESCO the Allen-Bradley Area of Primary Responsibility (APR) authorization after WESCO acquired Reily, even though Reily had been an Allen-Bradley distributor for years. Warren Group, Houston, Texas, now has the APR for that region.
IDW: Finally, some electronic commerce that's cool to talk about So many topics in electronic commerce have hit the electrical business with an industrywide yawn. It didn't seem to matter that EDI, bar coding or vendor-managed inventory (VMI) could recoup their substantial upfront investment with payback in efficiency and fewer errors. Mention one of the acronyms in electronic commerce's alphabet cyber-soup to most people in the electrical business and you were usually greeted with a glazed look, or a suggestion to talk to "the computer guys down the hall who really understand this stuff." But the Industry Data Warehouse (IDW) seems to be different. The system, which is under development and on a fast track, will enable distributors, manufacturers and reps to access mountains of synchronized pricing and product information from one central resource using standard browser software. The information will all be in one agreed-upon format, so users can read and use it without the annoying crosstalk that stunted the growth of other initiatives in electronic communications.
With relative speed, all interested parties have agreed upon this data standard, an accomplishment that took years with EDI and bar coding and never quite happened with VMI. Many trends led to the acceptance of this concept, including opportune timing and the "Windowization" of the business world. However, more than any outside factor, you can attribute the IDW's progress to a spirited group of industry leaders led by David Crum, president of Crum Electric Supply Co., Inc., Casper, Wyo., who launched the Electronic Commerce Council of the National Association of Electrical Distributors (NAED), St. Louis, Mo. According to one of the group's leaders, the IDW may prove to be "the salvation of the electrical industry."
Integrated Supply: Still all the rage
EW has been reporting on integrated supply since it first became a hot topic in the electrical wholesaling industry in the early 1990s. There now are at least 10 integrated-supply consortia operating in the electrical industry, with more new twists on integrated supply announced each year.
Not long ago, just a handful of electrical distributors were involved in integrated supply, where they and other distributors from a broad array of industrial and commercial supply disciplines worked together to provide industrial customers with one-stop shopping for dozens of different products. Now the concept is becoming well-known.
The concept is similar to what in the past were called "sole source," "single source," "blanket orders" or "national contracts," except that those contracts just dealt with electrical supplies. Many of today's integrated-supply deals focus on supplying a larger portion of a customer's diverse supply needs.
Because of the diversity of customer needs and the variety of existing distributor-customer relationships, no two integrated-supply arrangements are exactly alike. In fact, when a consortium attempts to force a new source of supply on a customer, the results often aren't pretty.
This year it was WESCO that stole the headlines in the integrated-supply arena, with its acquisition of Bruckner Supply, an industrial distributor with about 200 employees and 1997 sales of $225 million. Bruckner focuses on developing integrated-supply packages for the largest "Fortune 500" companies in the land, and has bagged contracts with Alcoa, American Airlines, General Motors, IBM and United Technologies. The company maintains sourcing agreements with more than 30,000 suppliers, according to an Electrical Marketing newsletter report at the time of WESCO's acquisition.
In other news on integrated supply and national account contracts, Square D Co., Palatine, Ill., and Graybar Electric Co., Inc., St. Louis, Mo., inked a three-year deal with IBM for all of its electrical and control products, including many OEM components; W.W. Grainger, Inc., Lincolnshire, Ill., put together a package for Compaq Computers Corp.; and the members of Affiliated Distributors, Inc., King of Prussia, Pa., signed large contracts with ConAgra, Michelin, Morrison Knudsen; Raytheon and Scott Paper.
Contractor Consolidation: The shoe is now on the other foot
After so many mergers and acquisitions among distributors, manufacturers and reps, it may be surprising to think that the consolidation craze is only now hitting the electrical contracting business. The world of electrical contractors is not unlike the electrical wholesaling industry in that for the most part it's populated by smaller, family-owned companies and has very few companies national in scope. All that is changing, though, with the formation of at least three new nationwide electrical contracting firms in the past year: Integrated Electrical Services, Inc. (IES), Houston, Texas; Consolidation Capital, Inc., Washington, D.C.; and Quanta Electrical Services, Inc., also of Houston. All three firms rank among the 10 largest electrical contractors in the country.
The combined 1997 revenues of IES' 16 original electrical contractor acquisitions totaled $312.6 million; the seven contractors that joined forces to form Consolidation Capital jointly had $276.9 million in sales; and Quanta's four contractors had combined revenues exceeding $130 million. National building maintenance firms that offer electrical service and installation along with HVAC service and other services also now are actively expanding. For instance, Group Maintenance America Corp. (GroupMAC), a Houston-based company with $900 million in annual revenue, recently added three electrical contractors with sales totaling about $100 million to its stable of HVAC and plumbing contractors.
While none of these companies has centralized its purchasing of electrical supplies, that subject is obviously a future concern to the suppliers whose customers have joined one of these consortiums.
Uncertain 1999: The Asian flu makes industry optimists queasy
The isolationists among us don't like to think that economic and political troubles in countries half a world away could spoil one of the longest running economic parties the U.S. has seen for quite some time. Unfortunately, that seems to be the case. Many electrical manufacturers with operations or customers in Asia, as well as distributors with customers that operate or sell in Asian have seen first-hand over the last two years just how much that region can affect the U.S. economy. Throw in a jittery stock market, and it's easy to see why many of the executives who give final approval to capital expenditure projects are now hesitant to pull the trigger. These projects hit distributors right in the wallet. An expansion calls for a ton of electrical products, so when a distributors' customer has to postpone expansion because demand for his services or products in Asia is down 25%-30%, that decision eventually finds its way to a distributor's bottom line. All in all, this scenario as much as any may be responsible for the gloomy business forecast that many electrical industry execs have for the industrial market in 1999.
Don't panic; there's still room for optimism on the domestic scene. EW 's 1999 industry sales forecast calls for a 7.4% growth in sales through electrical distributors over 1998 levels. Overall, the industry is headed past $75 billion next year. That's the type of solid, if not spectacular, single-digit annual increase that the industry has enjoyed over the past decade. Don't forget that the housing market is enjoying its strongest run in decades, albeit one that's expected to taper off next year, according to F.W. Dodge Reports. For demographic reasons, that softening is expected to increase down the pike as the available pool of first-time homebuyers begins to shrink because of the cyclical decrease in the number of people in the age group most likely to purchase homes. The office construction market looks strong for the next year as well. Vacancy rates for downtown commercial office space in many cities are creating a surge of new office construction. Things also look bright long-term in the construction of schools and health-care facilities because of the demographic realities that support the argument that in the near future there will be more people in the age groups that use these facilities most.
Merger Mania: Manufacturers keep on consolidating
A relatively unknown name in the U.S. has come ashore from overseas and emerged as a major player in the U.S. electrical/electronics market because of several large acquisitions: Siebe PLC. In 1998, Siebe, an enormous industrial conglomerate based in Windsor England with over $6 billion in annual sales, purchased Wonderware Corp., Irvine, Calif., one of the largest developers of factory automation software in the world, as well as the Safety and Security Products unit of Coleman Co. based in Downers Grove, Ill. Siebe's electrical/electronic portfolio already includes Robertshaw Controls Co., Corona, Calif.; Lambda Power Supplies, Melville, N.Y.; Foxboro Controls Co., Foxboro, Mass; and Paragon Electric Co., Two Rivers, Wis.
As in years past, Thomas & Betts Corp., Memphis, Tenn., was one of the most active players in the acquisition game. In 1998, T&B acquired Dark to Light, Inc., Pembroke, Mass., a lighting controls manufacturer; Kaufel Group, Montreal, Quebec, an emergency lighting manufacturer; Ocal, Inc, Van Nuys, Calif., a PVC conduit manufacturer; Pride Product Services, Inc., Tampa, Fla., a fiber-optic products manufacturer; and W.J. Furse & Co. Ltd., a British grounding-products manufacturer. The company also acquired certain tooling, patents and trademarks of Electrical Specialties Manufacturing, Lodi, Calif.
It's not unusual to see a lot of mergers, acquisitions and marketing alliances in the wire business, and this year was no exception. Here are the biggest deals in that business sector: AFC Cable Systems bought Federal Hose, Painesville, Ohio; Georgia Pipe Co., Thomasville, Ga.; and Spiraduct, Inc., Montgomery, Pa. Belden, Inc., St. Louis, Mo., purchased Cowan Cable Corp., Leominster, Mass. The Marmon Group, Chicago, Ill., bought Cable USA, Inc., Naples, Fla., and another Marmon company, Cerro Wire and Cable, Hartselle, Ala., acquired Aetna Wire and Cable, Bellmawr, N.J. Superior TeleCom, Inc., New York, N.Y., bought Essex International, Inc., Fort Wayne, Ind. Alflex Corp., Long Beach, Calif., and General Cable, Highland Heights, Ky., announced a marketing alliance that will blend Alflex's expertise in armored cable with General Cable's diverse offering of power wiring and low-voltage products.
As has been the case over the past few years wire and datacom distributors, Communications Supply Corp. (CSC), Downers Grove, Ill., and Anicom, Inc., Rosemont, Ill., were busy acquiring wire specialty distributors. CSC bought Diversified Wire & Cable Technologies, Inc., Troy, Mich. Mich.; Fibertron Corp., Buena Park, Calif.; and GNWC Wire, Cable and Network Products, Inc., also of Downers Grove. Anicom acquired Superior Wire and Cable, Inc., Tulsa, Okla.; Texcan Cables, Vancouver, British Columbia; and Yankee Electronics, Inc., Manchester, N.H.
The lighting market saw plenty of action, too. Fiberstars, Inc., Fremont, Calif., acquired FiberOptics International, Inc., Seattle, Wash.; Cooper Industries acquired Lumiere Design and Manufacturing, Inc., Westlake, Village, Calif.; and SLI, Inc., Canton, Mass., continued to add lighting companies to its portfolio, acquiring IllumElex Corp., Raleigh, N.C., a lighting management services company, and two international miniature lamp manufacturers-VCH International Ltd., Bury St. Edmunds, Great Britain, and Socop SA, Bensancon, France. In another deal on the international front, Wassall plc, London, announced plants to acquired TLG plc, London, (formerly Thorn Lighting Group).
There was also big news with two of the largest lighting conglomerates, as Genlyte Group, Inc., Union, N.J., and Thomas Industries, Inc., Louisville, Ky., formed a joint venture that will create what's estimated to be the third-largest lighting fixture company in the U.S., behind only Lithonia Lighting, Conyers, Ga., and Cooper Lighting, Elk Grove Village, Ill.
Emerson Electric Co., St. Louis, Mo. and General Signal were also in the headlines again this year. SPX Corp., an auto-industry supplier based in Muskegon, Mich., bought Stamford, Conn.-based General Signal Corp. The purchase is not expected to affect the EGS Electrical Group LLC, the organization that was set up last year to jointly market many products manufactured by Emerson's Appleton Electric and General Signal's electrical business unit. That joint venture now markets the Appleton, O-Z/Gedney, Curlee, ETP, McGill, Neer and Nelson product lines.
The new EGS Electrical Group also made two acquisitions: Easy Heat, New Carlisle, Ind., a manufacturer of heating cables, and ATX, Noisy-le-Sec, France, an industrial products manufacturer.
Other large acquisitions included: Danaher Corp., Washington, D.C., merged with Fluke Corp., Everett, Wash.; Nortek, Inc., Providence, R.I., the parent of Broan Manufacturing, Hartford, Wis., purchased NuTone, Inc., Cincinnati, Ohio, Broan's largest competitor;
Rittal Corp., Springfield, Ohio, purchased the Electromate and Keystone brands and certain related assets from Robroy Industries, Inc., Verona, Pa. The Wiremold Co., West Hartford, Conn., bought Salamandre, a British underfloor duct manufacturer.
At press time, Tyco International Ltd., Exeter, N.H., announced plans to acquire AMP, Inc. Harrisburg, Pa., thwarting AlliedSignal's hostile bid for the company.
Merger Mania II: Distributor M&As of note
EW and Electrical Marketing, its sister publication, had no lack of distributor mergers and acquisitions to track this year. As mentioned earlier, WESCO was again the most active, but several other national, international and regional players made key moves, too. Here are the largest of the distributor acquisitions that occurred in 1998:
Billows Electric Supply Co., Philadelphia, Pa., expanded into New Jersey with the purchase of Franklin Electric Co., Atlantic City, N.J.;
Cooper Electric Supply Co., Tinton Falls, N.J., acquired Barri Electric Supply Co., Jersey City, N.J.; also Flemington Electric Supply, Flemington, N.J.; and certain assets of Gamarel Electric Supply Irving-ton, N.J.
Crescent Electric Supply Co., East Dubuque, Ill., acquired DESCO, Inc., Nashville, Tenn.; Tri Electric Supply, San Marcos, Calif.; and Westar Electric Supply Co., Portland, Ore.
DXP Enterprises, Houston, a purveyor of integrated- supply services that owns distributors in many other disciplines, purchased Tri-Electric Supply Co., San Antonio, Texas, which is seen as a platform for further expansion in the electrical market.
GE Supply Co., Shelton, Conn., acquired Cal Tech Controls, Livermore, Calif.; seven-location Unilec Corp., Scottsdale, Ariz., and M. Keilliher and Sons Ltd., Tralee, Ireland.
Genuine Parts Co., Atlanta, Ga., bought EIS, Inc., also of Atlanta. Hughes Supply, Inc., Orlando, Fla., purchased Fife/Florida Electric Supply, Tampa, Fla., and Winn-Lange Electric, Inc., Houston, Texas.
McNaughton-McKay Electric Co., Sterling Heights, Mich., bought another Allen-Bradley distributor in the heart of the auto belt: Advance Electric Supply Co, Inc., Flint, Mich.
Platt Electric Supply, Inc., Beaverton, Ore., acquired ESCO Electric Supply, Bend, Ore.
After years of watching the U.S. market from an expanding North American base of operations in Canada, Sonepar, Paris, France, bought Eagle Electric Supply Co., Inc., Norwood, Mass., and announced its intention to expand rapidly in the U.S. Viking Electric Supply, Inc., St. Paul, Minn., purchased Badger Electric Supply Corp., Oshkosh, Wis.
Westburne, Inc., Montreal, Quebec, acquired Kingston, Lee Watson Co., Ltd.