IDG Sees Synergies with Other Platinum Equity Companies

Industrial Distribution Group, Atlanta, GA, which agreed to be purchased by private equity group Platinum Equity, commented briefly on the coming transaction in a conference call with analysts:
 
Platinum Equity already owns two distribution service-oriented companies -Strategic Distribution Inc. and Ryerson Inc. -that are involved in similar or related businesses to Industrial Distribution Group. We believe there are natural fits and potential synergies within Platinum Equity, and we look forward to discussing those with Platinum Equity and the management teams of their individual businesses," CEO Charlie Lingenfelter said today.
 
Ryerson was acquired by Platinum in October 2007. Its CEO and CFO have since left the company. Ryerson is a $5.9 billion distributor and processor of metals in North America and is expanding internationally through joint ventures in Mexico, India and China. Ryerson is also a supplier of architectural metal roofing.
 
Much of Strategic Distribution's business is focused on integrated supply; about 60% of IDG's sales are in integrated supply, its fastest growing unit.
 
"We are a distributor first and foremost," Lingenfelter told MDM in an interview last summer. "We're a successful integrator, but the roots of those integration skills and resources started as a distributor. In the past nine years we've lost sight of that. The growth was so great on the Flexible Procurement Solutions (integrated supply) side, that we didn't mind our Ps and Qs on the distribution side. I've put about 80 percent of my effort in the past 18 months into really focusing on the core of our business -being a technical MROP distributor." In its recent annual results, MROP sales declined contributing to the overall sales decrease.
 
Going into the second half of 2007, Lingenfelter told MDM last year the company was working to improve the traditional MROP distribution side of its operations.
 
"IDG's biggest problem is that it hasn't delivered profitable, consistent sales growth," he said. "We're working on selling more Flexible Procurement Solutions deals and at the same time improving our profitability in our general MROP side by buying better as one company and using strategic pricing, which we are implementing now."
 
Struggling Sales
Before agreeing to be purchased by Platinum, Strategic, like IDG, had not been posting strong earnings results in its final quarters as a public company. In 2005, it reported sales of $136.9 million and a net loss of $3.4 million. Its numbers in fiscal 2006 weren't much of an improvement, with the company recording losses in the first and second quarter and only a slight gain of $0.2 million in the third. Platinum announced it would buy Strategic in January 2007.
 
IDG this week reported sales for 2007 were $537.5 million, compared with $547.9 million in 2006, down 1.9%. Profit was $4.1 million, compared with $6.8 million last year.
 
Part of IDG's struggles since its creation in 1997 was integrating the distributors that comprised its rollup structure. When Lingenfelter came on board as CEO in 2005, he pushed to take the distributor from what was then four divisions to one.
 
"When I took over we had four separate operating divisions and a stand-alone specialty cutting tool business in Wichita, KS," he explained to MDM earlier this year. "Each of the divisions had their own back offices with three separate management information systems and division-based accounting departments. We also had a corporate accounting group that brought all of the financial information together. That gives you four purchasing teams, four sales teams, four logistics teams, four marketing teams and four HR teams."