Times & Trends: Lessons Learned from the Top 200

Hearing about what’s on the minds of dozens of distribution executives from the largest electrical distributors in North America is an education in entrepreneurship that has got to be worth a few college credits from some business school. Each year I learn something new about this business from our Top 200 respondents. Below are the five things I learned while working on this year’s ranking.

Distributor acquisitions are surging again in the electrical market. You would think that after more than 30 years of reporting on M&A activity in the electrical market, I wouldn’t be shocked by how many companies get acquired each year in our industry. But then I look at EW’s Top 200 listing from last year and see that 14 companies have been acquired in the last 18 months. Yowsa! These weren’t exactly small companies, either (see acquisition chart on page 14). In fact, I can conservatively estimate the total sales volume of these deals at no less than $2.89 billion.

Distributor acquisitions have been going on for decades, and old-timers can probably recite the names of dozens of companies that have been acquired over the years.  Heck, I checked the 2006 Top 200 listing from just 10 years ago, and 41 electrical distributors from that ranking have been acquired over the past decade.

The oil and gas blues have been a sad song for an awful lot of distributors, and if they sell to other parts of the industrial market, it’s an even more depressing tune. Any electrical distributor who doesn’t service the energy markets is probably lucky. Most of the companies that do rely on it have been through this cycle before and know how to ride out the downturn. Over the past few weeks, we are starting to see some signs that the oil & gas market has bottomed out.

Copper prices have had a more dramatic impact on distributor sales volume than I expected. EW’s editors watch the copper charts pretty closely, but until you hear from distributors on the impact that lower copper prices have had on their top-line sales, we didn’t realize just how much they affect individual companies. In its most recent 10-K, Anixter said that lower copper prices and the stronger U.S. dollar “combined to create a nearly $300 million unfavorable impact to reported sales, with a disproportionate impact in the Electrical & Electronic Solutions (EES) segment.”

Everyone is talking about how LEDs are revolutionizing the lighting world, but distributors are worried about which new vendors will be around in five years, and how much to invest in such a rapidly changing technology. In his Top 200 survey response, Bob LaRue, president and CEO, Alameda Electrical Distributors, Hayward, Calif., probably summed up the inventory challenge best: “Tough to keep up with,” he wrote. “Hard to invest in a product line when it has a shelf life so short.”

With his company’s nationwide emphasis on lighting retrofits, Stephen Byrne, general manager-lighting, Facility Solutions Group, Austin, Texas, has one of the best perspectives on the LED revolution and how it impacts electrical distributors. He said in his Top 200 survey response that the two biggest challenges for his company are managing LED price devaluation on material and managing warranty for LED sales.

The Internet of Things IoT just might be for real. Distributors tend to be pretty skeptical when it comes to investing in new technology. That’s why it was so surprising for EW’s editors to hear from a fair number of Top 200 electrical distributors that they not only believe the IoT is for real, but that they are already evaluating — and in some case stocking — IoT-enabled products.

Tim Berry, president and CEO, Kriz-Davis Co., Grand Island, Neb., said IoT is already a major focus for his company, which concentrates on the electrical and utility markets. “From lighting controls to distribution automation in the utility sector, we see this as a major focus area for expected gain in revenues,” he said.

EW’s editors hope you learn just as much as we did from this year’s Top 200 feature, which begins on page 18. Over the next few weeks, we will also be posting additional Top 200-related digital content at www.ewweb.com.