DXP Enterprises to Buy Precision Industries for $106M

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August 19, 2007

DXP Enterprises to Buy Precision Industries for $106M

DXP Enterprises, Inc., Houston, TX, will acquire Precision Industries, Inc., Omaha, NE, for approximately $106 million. The deal nearly doubles the size of DXP.

Precision has annualized 2007 sales of approximately $250 million. DXP's sales in 2006 were $279.8 million. Its sales this year will approach $340 million, based on first-half results.

Precision is a family-owned national industrial distributor with about 45% of its business in integrated supply, according to Precision's spokesperson. It has 160 locations. Precision has made at least five acquisitions since 2001, according to its Web site, and has greatly expanded its network nationwide in the past five years.

Precision sells abrasives & cutting tools, bearings, power transmission, electrical products, fasteners, fluid power, hand & power tools, janitorial products, linear products, lubrication, material handling, pipes, valves & fittings, rubber products and safety products.

DXP Enterprises is a distributor of pumps, bearings, power transmission, seals, hose, safety, fluid power, and electrical and industrial supplies. DXP distributes its products from 38 service centers, 17 SmartSource (integrated supply) locations and two distribution centers, primarily in the southwestern rocky mountain, mid-western and southeastern regions of the U.S.

DXP has been busy in the acquisition arena lately, with several smaller buys of industrial and safety supply distributors. Year-to-date, the distributor's sales are up 28% to $169 million. Sales by businesses acquired in 2006 and 2007 accounted for $23.5 million of the $36.7 million increase from the prior-year period.

Organic growth was 10%.

DXP has seen broad-based growth in its MRO segment (which accounts for a majority of the distributor's sales) in recent years, according to its 2006 annual report, with organic growth in that segment up 45% in 2006 from the prior year. The distributor attributed the growth to an increase in sales to the oil and gas industry, as well as the mining, electrical generation and petrochemical processing industries. The sales increase was also attributed to "an improved economy and high energy prices."

In its 2006 annual report, DXP gave insight into how it views the competitive landscape in industrial MRO: "In the MRO segment we compete with a variety of industrial supply distributors, many of which may have greater financial and other resources than we do. Many of our competitors are small enterprises selling to customers in a limited geographic area.

"We also compete with larger distributors that provide integrated supply programs and outsourcing services similar to those offered through our SmartSource program, some of which might be able to supply their products in a more efficient and cost-effective manner than we can provide.

"We also compete with direct mail distributors, large warehouse stores and, to a lesser extent, manufacturers. While many of our competitors offer traditional distribution of some of the product groupings that we offer, we are not aware of any major competitor that offers on a nondirect mail basis a product grouping as broad as our offering.

"Further, while certain direct-mail distributors provide product offerings as broad as ours, these competitors do not offer the product application, technical design and after-the-sale services that we provide."

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