Tom Gale

Tom Gale has been an MDM researcher and industry analyst for 30+ years on independent distribution channel trends, consolidation, technology and competitive landscape. He is a frequent speaker and moderator on these topics at company, marketing group and association meetings in North America and Europe.

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Commentary: Tangential Markets Provide Growth Paths

The economic outlook in our lead article notes that the link between industrial distribution revenues and manufacturing activity has weakened as traditional industrial distributors have diversified into more general commercial facility supply.

I have certainly seen distributors push hard into new product sectors and customer segments in the past five years with great success. You could argue that this trend is the natural outcome of how industrial channels have matured since the 1980s. Systems contracts emerged as the first step to manage MRO industrial supply procurement from a process versus product focus. Yes, there were clearly some similar models in the first part of the 20th century, but manufacturers held a different position in controlling distribution channels. ...

May 10, 2008

Finance

Night & Day for M&A

I recently spoke with the three panelists who will be on the third annual MDM Distribution M&A 2008 Update call on May 22 -Brent Grover, Jim Miller and Jon Skelly. They all described how radically things have changed in less than 12 months in merger and acquisition activity in distribution. Here are a few quick takeaways from that call.

A year ago, financial buyers were driving the market with still-high EBITDA multiples and a lot of deal activity. Activity and pricing have dropped significantly in 2008. Debt markets have tightened, and private equity has its hands tied with very different capital structures. Strategic buyers could not compete a year ago with the multiples; this year they are competitive ...

May 7, 2008

Economic Trends

Wading Through 2008

Yesterday's numbers weren't surprising to most distributors, but they reinforce that this year is about doing some hard work to position and strengthen the business. GDP rose at a 0.6% annual rate in the first quarter of 2008 to mirror the fourth quarter of 2007. The Federal Reserve lowered its key interest rate by one-quarter percentage point to 2.0 percent, the lowest since November 2004.

What the numbers aren't saying: Certain markets are beginning to soften in the last 30-60 days for some industrial distributors, but sales levels still exceed expectations set last fall. Products bound for end-use markets in energy, export and infrastructure are staying strong.

Of the 142,000 attendees the CONEXPO/IFPE show last month drew to Las Vegas, about 19% were ...

April 30, 2008

Finance

Commentary: A Little Context on the Fight for IDG

Why have three investors been raising the price for Industrial Distribution Group (IDG), the traditional whipping post of the investment community?

Last year, when IDG's board pursued an exit strategy to free itself from the constraints of public ownership, the M&A market in distribution was still near its peak. In a year's time, we have shifted dramatically from a financial frenzy to a quieter, more strategic buyer's market. In today's risk-averse debt markets, show me the money has taken on new meaning in the bidding war for IDG.

The three bidders active in this deal -Platinum Equity (owns Strategic Distribution), Luther King Capital Management (owns 15 percent of IDG stock), and WESCO (owns Bruckner Supply) -know the strengths and weaknesses in IDG. Based on ...

April 25, 2008

Finance

Look Beyond Numbers in IDG Deal

UPDATE: IDG to Accept Luther King Capital Management Bid
UPDATE: WESCO Drops Bid for IDG

WESCO's last-minute catch of Industrial Distribution Group is a good fit with its Bruckner Supply business, focused on integrated supply, together with its strong electrical distribution business into industrial accounts. It's also a good fit from a broader perspective in terms of where WESCO is positioned with international competitors in North American markets.

Most industry observers look at IDG's checkered ten-year history as a public company, specifically its sluggish earnings reports, and see an ...

April 16, 2008

Perspective

Commentary: A New Look for Modern Distribution Management

You'll notice a few minor changes in the print version of MDM this issue, as well as some upcoming changes online, in an effort to make our information services more user-friendly. This column, which has been on the front page of the yellow section for a few years, will now appear on this page.

This Perspective column is often either related to the cover story or about broader distribution-related issues, so page 2 of our print edition is a more logical place for it to live than in the Industrial &Construction Markets Update yellow section. This page also gives us more space to explore issues than the single-column format in place for the past 40 years. More space also gives us some flexibility to address, when warranted, more than one topic.

The Industrial ...

April 10, 2008

Sales & Marketing

Commentary: Get Out of the Sales Feast-or-Famine Cycle

In the movie Groundhog Day, the main character wakes up each morning doomed to repeat the exact same day, until he realizes he can change his life and do better.

That movie might be a useful management tool as we move through the current downturn in the economic cycle. As noted in an upcoming interview in MDM, Al Bates has been conducting financial performance surveys of distributors for nearly three decades. He has a wealth of data on how distributors have done across multiple business cycles. So is this cycle any different? We are going to come out of this recession the same way we came out of 2001-02, he said. Distributors will give up the same ROA they have in every cycle, then rebuild sales, add too many people and overhead, then cut when the next downturn ...

March 25, 2008

Economic Trends

CONEXPO, IFPE Show Outsized Even for Vegas

You wouldn't know the troubles in U.S. residential construction markets if you were at the CONEXPO-CON/AGG and IFPE expositions last week in Las Vegas. From what I heard and saw, people were buying and shopping hard. The two biggest impressions I came away with were the quantity of international exhibitors and attendees, and the increased focus of energy-efficient and hybrid technology, both on the construction side as well as hydraulic and motion control products.

Without question, the vitality of the show indicates there are some growth markets even while the national focus is on the housing markets. Manufacturers and distributors at the show said their industrial sales were strong. Those selling into energy-related sectors and any markets with export were reporting ...

March 20, 2008

Economic Trends

Commentary: Not Every Market Showing Signs of a Slowdown

A funny thing happened on the way to a recession. Data keeps getting in the way, at least in certain markets that the mass media don't pay a lot of attention to. Case in point: January trend data by the Power Transmission Distributors Association shows an uptick in sales for the month in the U.S. and Canada.

So while broad-based needles continue to point down, it's important to keep the market niches, customer segments and top ten customers that define the long-term health of your business front and center in your perspective.

The MDM Survey on the Economy in this issue offers a few interesting indicators within wholesale distribution. Nearly a quarter of those who responded are planning an acquisition in the next six months. More than a third expect to have ...

March 10, 2008

Perspective

Commentary: A Tribute to a Distribution Veteran

When one of my mentors in this industry emailed in December to say he just left his office for the last time at the company he had been with for 48 years, it struck me how much impact he has had on so many people in this industry.

I first met Roy Otto, former owner of Machine Tool Supply in Eagan, MN, 25 years ago. He has been a teacher to many people in this industry and beyond. He has been generous in sharing his knowledge and enthusiasm for the industry, and has been a strong role model for hundreds of employees, peers, suppliers and competitors.

Roy started in the warehouse of in 1959, worked hard and moved into inside and outside sales. It was natural that he ended up with an equity stake. Roy built a well-planned exit strategy, sold his business a few years ...

February 25, 2008

Free

A Tribute to Roy: Nearly 50 Years in Distribution

When one of my mentors in this industry emailed me in December to let me know that he had just left his office for the last time at the company he had been with for 48 years, it struck me how much impact he has had on so many people in this industry. Those who know him will appreciate that he included the exact minute of his departure, not because he couldn't wait to bust out, but because of the well-known attention to detail he brought to running and growing his business over several decades.

I first met Roy Otto, former owner of Machine Tool Supply in Eagan, MN, about 25 years ago, when he was the chair of a publications committee for the state's tooling and machining association. He has been a teacher without seeming like one to many people in this industry and beyond. He ...

February 19, 2008

Economic Trends

Distributors Stay Focused Despite Economic Turbulence

The recent National Association of Wholesaler-Distributors Executive Summit in Washington drew one of the largest audiences of wholesale distribution executives together in years. I have attended nearly every annual NAW meeting since 1993, and this one can best be summed up by one word: Focus.

My key takeaways from sessions and conversations: The executives at this conference weren't obsessed with economic news they can't control. Rather, they were focused on collecting great ideas on how to get leaner, improve profitability and finetune strategies. They were benchmarking their performance against the case studies they heard, and probing to find ways to improve internal processes.

Economist Alan Beaulieu got everyone's attention as the first speaker when he ...

February 13, 2008

Research & Analytics

Commentary: Master distribution evolves with shifting markets

The role of master distribution has shifted significantly. That's why we wanted to understand more clearly why United Stationers diversified with the acquisition of ORS Nasco in December.

Dick Gochnauer addresses (see page 1 interview) how United adds value in two places: marketing and logistics. Different forms of support services have evolved to fill these two needs in highly fragmented and consolidating markets. These include buying/coop/marketing groups, master wholesalers, hybrid catalog/master distributors, independent logistics providers (CoLinx in power transmission) and joint ventures between manufacturers (PTPlace.com). There's a mix of competition and cooperation across all these entities.

Distributors and manufacturers have leveraged these tools to ...

February 10, 2008

Economic Trends

Commentary: Tougher Numbers in 2008

Home Depot bought Hughes Supply in January 2006 with an EBITDA valuation above 12X, a number still ringing in the ears of many distributors. A scant year later HD announced its intentions to focus on retail and explore alternatives for its $12-billion distribution unit. It sold the unit this past June.

As distributors ring in this year, the competitive landscape looks vastly different than even six months ago. While there is still a lot of private equity money searching for deals in distribution, debt markets have tightened.

As a result, valuations are dropping fast, and the level of deal-making activity dropped significantly in the last quarter of 2007. In 2008, we will likely see strategic buyers execute smaller add-ons, rather than the blockbuster deals spawned ...

January 25, 2008

Finance

Home Depot Hangover: An Update on Distribution M&A Activity

Distribution M&A markets have changed significantly in the past six months. Deals, especially in the last quarter, have started to dry up and valuations are dropping fast. Yet there is still a lot of private equity money looking for a place to land. Yesterday I had the pleasure of moderating a discussion with Brent Grover of Evergreen Consulting and Jim Miller of Supply Chain Equity Partners. These two gentlemen have complementary perspectives with strong distribution expertise, but they did not bear much good news.

We clearly are on the back side of the peak of valuations. With tighter debt markets, financial buyers won't be driving the market the way they have the past few years, but they will be a factor, Miller noted. His take is that there will still be add-on ...

January 18, 2008

Human Resources in Wholesale Distribution

Commentary: Make Great Employees Your Strategy

Employees who care about a customer? Valuable. Employees who take ownership of making customers happy and initiative in making your company more profitable? Priceless and perhaps increasingly extinct.

Distributors aren't ignoring the issue of human resource development. In fact, the University of Industrial Distribution, an annual program that a few years ago went begging for students at its annual one-week session, has been quickly selling out about 500 seats the past two years. But it will take a lot more than annual off-site training to keep your company competitive and growing in turbulent economies. A team of motivated, resourceful and creative problem solvers can make the difference in a company's performance.

People with great skills are in short supply; ...

January 10, 2008

Research & Analytics

Commentary: The Value of Wholesale Distribution

This time of year serves as a reminder of the incredible logistics infrastructure that now exists in this country and around the globe. But while we increasingly take for granted the ability to point, click, shop and select overnight delivery, let's acknowledge the distinct value wholesale-distributors provide.
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A unique set of capabilities, service functions and responsibilities defines how a distributor meets customer requirements (often including same-day delivery and 24-hour service). In addition to large customers, there are countless micro markets that depend on local supply services that go far beyond logistics expertise or product selection with a mouse and price-comparison sheet.
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Yet, as conversations often remind us at holiday parties, many ...

December 25, 2007

Top Distributor Sectors

Commentary: CompUSA’s Closing Holds Lessons for Distributors

News that CompUSA will shut its remaining 100 stores and sell off its assets offers some insight for distributors and manufacturers feeling the pressures of consolidation. The downturn of the electronics retailer was not for lack of investment, but likely poor positioning.

Investing in the business in the late 1990s, Mexican telecom and retail store magnate Carlos Slim (now the richest man in the world) took CompUSA private, and the company grew its consumer electronics business through acquisition, including The Good Guys, a California chain.

The Wall Street Journal estimates annual sales last year at $4 billion, but likely to come in at $1.5 billion this year. Early in 2007, it said it would close 126 stores, more than half of its total then.

Anyone who ...

December 10, 2007

Subscriber Only

Commentary: Look Beyond the Headlines

Many sources are predicting a more significant slowdown in 2008 than previously thought, as several articles in this issue address. Perhaps the only predictable certainty for 2008 is that the attention deficit disorder the mainstream media suffers from will be epidemic. Not only is it an election year, but the credit crunch and residential construction downturn will give most reporters severe whiplash. It will be even harder to get an accurate read on the real shifts taking place in the economy.

We don't predict the future, but we do try to offer observations and insight from our coverage of diverse distribution sectors in

North America and abroad so our readers can plan and react quickly. Our lead ...

November 25, 2007

Technology

Commentary: Data Standards Need Leadership

As a good friend once observed, success in distribution is not so much hitting home runs or triples, but executing singles well and celebrating the occasional double. (The baseball analogy might be a little late but only because the World Series ended too early).
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It would be nice to apply that thought to the area of data standards in distribution, but we can't. There are some isolated sectors where there have been successes, most notably in electronics and electrical product sectors. But most areas in distribution have been striking out or at best getting an infield hit every once in a while. Not surprising really, when you consider how fragmented this industry is at every level.
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For more than 20 years, there have been efforts to connect distributors with ...

November 10, 2007

Tom Gale

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