6309 Monarch Park Place, Suite 203
Niwot, CO 80503, USA
Phone (303) 443-5060
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Century, founded in 1988 and headquartered in Houston, is a distributor of MRO products to property management companies in the U.S. Its nationwide distribution network includes 39 strategically located branches in major metropolitan markets in 35 states. Century's sales and operating income for the twelve months ended Sept. 30, 2003 were $311 million and $35 million, respectively. It improved margins during the recent economic downturn.
"Our two companies share the common goal of providing exceptional service to the multi-family apartment industry. There is also a strong cultural fit that will allow us to integrate our businesses quickly and facilitate further growth in the fragmented MRO segment," said Joe Semmer, CEO of Century Maintenance Supply.
"This transaction is a strategic move into the estimated $10 billion MRO industry," said Tom Morgan, president and CEO of Hughes Supply Inc. "In combination with our existing MRO business, this acquisition will make Hughes a leader in the apartment MRO market and facilitate our entry into other MRO markets. Additionally, it will allow us to expand our geographic presence, enabling us to more effectively serve national property management companies throughout the U.S. I anticipate a rapid integration of our two businesses with adoption of best practices and combined MRO revenue approaching $500 million in our next fiscal year."
Key financial and strategic benefits of the transaction, as seen by Hughes:
* Market Leadership and Higher Growth ' Century's anticipated growth rate in the next few years is nearly twice that of Hughes. With a strong best-of-breed, national procurement, distribution and services footprint, Hughes will be well-positioned to move into adjacent geographic territories and other attractive MRO markets, including lodging and healthcare, assisted living, education and government/military facilities.
* Enhanced Returns ' The Hughes MRO business currently delivers a return on invested capital (ROIC) that is 50% higher than Hughes' core business. Because of its superior business model, which results in a double-digit operating income ratio to sales, Century's ROIC is significantly higher, such that the combined business is expected to generate an ROIC between two and three times Hughes' overall current return.
* Significant Operating Synergies ' The operating synergies gained from combining the two businesses are significant, particularly as a ratio to current earnings. Substantial gains can be achieved in facilities, transportation, purchasing, marketing, insurance and corporate services, and telecommunications. The full impact of synergies should be attained by the second year and significantly improve the transaction price multiple.
* Improved Capital Efficiency ' The use of capital in the MRO segment is more efficient, in part, because the business is much less seasonal and cyclical. This drives superior and more predictable cash flow as well as the higher return on invested capital.
* Annuity Characteristics ' The MRO business is less vulnerable to new construction trends, regional economic volatilities and disruptive weather.
Hughes intends to finance the transaction with a combination of existing facilities and a committed interim term loan facility provided by Lehman Brothers and SunTrust Bank. Hughes anticipates that the interim facility will be refinanced in the first half of 2004, in either the equity or debt capital markets.
Century's majority shareholder is Freeman Spogli & Co., a privately-owned investment firm which purchased a 57% equity stake in Century Maintenance Supply, Inc., in 1998.