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The Urge to Merge

Feb. 9, 2023
Rep merger & acquisition activity is heating up.

Noticing more rep acquisitions and mergers than ever before? Over the past few years, Electrical Wholesaling’s editors have reported on almost 20 rep mergers (see chart below). While each one of them is unique, they likely occurred for one of these five reasons: An independent manufacturers’ rep wants to expand into an adjacent geographic territory, and he or she contacts a company in that market about selling their company.

  • A rep wants to expand into a new product vertical or customer group and seeks out a blue-chip rep firm with that expertise and/or customer relationships.
  • A rep is nearing retirement age, but doesn’t have a succession plan in place.
  • A manufacturer needs to increase sales in a geographic area and wants to do it with one preferred rep rather than several smaller companies, so they suggest that rep acquires the other company.
  • A large, regional rep with a proven and profitable business model for growth merges with a smaller rep firm that has the local customer relationships and a solid line card, but doesn’t have enough capital to invest in the company’s operations to accelerate future growth.

Ewing-Foley, Cupertino, CA, has made several acquisitions over the past few years, and each one of them has a unique twist. It expanded into the Pacific Northwest in 2000 when one of its key principals for its northern California territory, Hoffman, wanted to convert from a direct sales force in Washington to an independent rep. Gary Lessing, then Ewing-Foley’s president, saw an opportunity to establish a footprint for the agency in the Pacific Northwest, and the firm acquired the existing Hoffman rep in Oregon and combined it with the best assets from Hoffman’s direct sales efforts in Washington, including personnel and facilities.

Within two years, Ewing-Foley was able to demonstrate its value proposition to two other large principals, Panduit Corp. and EGS Electrical Group. Like Hoffman, the two companies wanted to convert from direct sales organizations to independent reps in their Pacific Northwest territories. “We were in a unique position to be able to pull together the individual strengths of each of these complementary principals so the sum of the pieces was greater than the parts,” Lessing told EW in a 2007 article. “The customer base responded favorably to this ‘solution set’ approach.”

The company used a different approach when it expanded its coverage of the Denver market and Intermountain region in 2022 by merging with Ryall Group. Ryall was attracted to the company’s business operating system, the two companies’ synergistic line cards and complementary and contiguous territories and focus on common customer types.

Dan Ryall, president, and CEO of Ryall Group, said in the press release announcing the acquisition that they felt EFI was its best choice in helping us scale to the next level. “We recognized that we needed the back-office support and business systems EFI has successfully deployed across their other territories to achieve our goals,” he said. “Developing this capability is a long and costly journey for any representative firm, and we are fortunate to leverage the years of work EFI has done in this area.”

In an interview with EW, Scott Lessing said the EFI business system is attractive to other reps because the company had talented people in sales administration, HR, accounting, IT, business analysis, reporting, sales/commission reconciliation and administrative support throughout its Western offices. “It comes down to sharing, explaining, demonstrating and living the company culture that makes us what we are today. This always takes time. We take every opportunity to provide training and support, solicit feedback and share results so that everyone on our team understands our asks and how we use the information, including feedback, mentoring, coaching, and accountability using our MBO (Management by Objectives) process.

“Regarding new activities, we rely on the talented group of people I mentioned to push the envelope in areas like data analytics, CRM analytics, calendar/activities, objective (MBO) tracking, and deliverables back to our employees using power BI and other dashboard tools.”

BLENDING EXPERTISE & MARKET REACH

An acquisition often blends one or more of these strategies. When Synergy Electrical Sales, Fairless Hills, PA, bought Pyramid Lighting Group, New York in 2017, it expanded and bolstered its geographic presence in the New York metropolitan area and gain additional lighting expertise.

Before the acquisition, Synergy was already intimately familiar with the merger process because the company itself was formed through a merger of three well-known and family-run rep firms in the eastern Pennsylvania, southern New Jersey and Delaware markets — Low Associates, McDevitt Electrical Sales and Jacobson-Rodger Associates. The Pyramid acquisition was a win-win for both companies because it gave Synergy a showroom presence on West 29th St. in Manhattan and gave Pyramid access to Lutron’s Shading Solutions product line.

MANUFACTURERS WEIGH IN

Jim Johnson, the president and CEO of the National Electrical Manufacturers Representatives Association (NEMRA), says electrical manufacturers often suggest an acquisition of a smaller rep in an adjacent geographic territory to a preferred rep because they are looking for the efficiencies and fewer touch points of managing a smaller network of reps.

He also told Electrical Wholesaling succession planning is a big issue for many NEMRA reps, and that the association offers its members assistance with business evaluation and succession planning.

THE NEED FOR  SUCCESSION PLANNING

Charley Cohon, president of the Manufacturers Agents National Association (MANA), and formerly CEO of Prime Devices Corp., Glenview, IL, has experience with rep acquisitions as both the owner of an agency who sold his business and as an association executive who provides resources on succession planning to reps. He has seen an increase in demand for the resources that MANA provides. “An increase in acquisitions is a challenging thing to pin down, because a rep firm acquisition done right is usually a five-year transition. When I speak to reps on this topic, I often say, ‘If you have a new grandchild today and start your succession planning today, on the day you finally walk away from your rep firm you can walk that grandchild to their first day of kindergarten.’

“Most acquisitions are still because the owner has reached an age where they want to step away from the daily grind. At times, it’s driven by a manufacturer who wants to consolidate their rep firms into a smaller group. Very rarely, a manufacturer who has lost confidence in a rep and asks them to allow one of that manufacturer’s more-successful reps in an adjacent territory to take over that rep’s geography.”

SUMMARY

While mergers and acquisitions have always been part of the world of independent reps, it will be interesting to see if they continue at the same rapid pace. Many agency owners may decide to sell their businesses in the future for the same demographic and economic reasons that executives of other family-owned businesses —including electrical supply houses — are selling their companies: a plan to retire and spend more time with family; the lack of a succession plan; a post-Covid re-evaluation of priorities in their lives; and a desire to sell the business while the long-term prospects of the economy are still reasonably strong.

With these factors in mind, chances are the current surge of rep acquisition activity won’t slow down anytime too soon.

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