In a deal that significantly shifts the distribution competitive landscape for power transmission, MRO and flow technology products across Europe, private equity firm Advent International, which took Brammer private earlier this year, has agreed to acquire IPH, a European industrial supplies distributor, from PAI Partners. The combined companies will have revenues of €2.1 billion (US$2.4 billion).
While holding different product mixes, the two companies have arguably been the most direct international competitors across the core product categories of bearings, mechanical power transmission, fluid power, tools and other MRO products, as well as safety products. This deal could offer opportunity to other distributors as customers that used these companies as their primary suppliers seek alternate competitive sources. Likewise, major suppliers to these two companies in the past may seek alternate channel partners.
IPH had revenues of €1.3 billion (US$1.5 billion) in 2016 across a dozen companies and more than 280 branches in 10 European countries. It has pursued an aggressive acquisition strategy over the past 10 years to build the original company platforms of Orexad in France and Biesheuvel in the Netherlands. IPH serves a range of industries, including heavy industry, chemical and pharmaceutical, food-processing, energy, transport, automotive, petrochemicals and mechanical engineering. IPH was valued at €465 million (US$518.3 million) when PAI bought it in 2013. The private equity firm added more than 50 acquisitions and entry into five new countries.
Brammer Ltd., with €754 million (US$840.4 million) in revenues in 2016, has 460 locations in 23 countries. The company has faced a number of turbulent years due to aggressive acquisition and a strategy that emulated models of both Fastenal and Motion Industries in the U.S. Its acquisition of Lonne Holding in Norway in 2014 was ill-timed with a heavy focus on serving Scandinavian energy markets, and its aggressive vending machine program, patterned after Fastenal, did not yield the expected ROI, according to multiple MDM sources. Brammer was struggling in 2016 when Advent took it off the London Stock Exchange in a €250-million (US$278.6 million) deal this February.
European competitive landscape
Until this deal, ERIKS Group is estimated to have held a European market share fairly close to IPH. For 2015, ERIKS global revenues of more than €2 billion (US$2.2 billion), with about two-thirds of in Europe (the remaining one-third is from North America). Its acquisition of WYKO in 2006 gave it both a strong presence in the UK as well as a strong portfolio of power transmission, fluid power and MRO products to complement its traditional focus on hose and flow control products. The combined revenues of the ERIKS/WYKO business in 2006 was €850 million (US$947.4 million).
Dexis, a subsidiary of Descours & Cabaud, sells a product mix close to that of IPH and Brammer. Its 2016 revenues of €800 million (US$947.4 million) are primarily concentrated in France, but it also has operations in eight other European countries.
W.W. Grainger does not report European earnings as a discrete unit, but 2016 revenues for its international businesses, which include Europe, Asia and Latin America, were $844 million. Grainger’s European businesses include fastener and MRO distributor Fabory, acquired in 2011 with revenues at the time of €250 million (US$278.6illion), and tooling specialist Cromwell Group, acquired in 2015 with revenues then of €283 million (US$315.4 million), primarily in the UK.
Similar to U.S. market dynamics, M&A strategies in Europe are increasingly being driven by Amazon Business and the generational transitions taking place at customers across all market segments. That means creating stronger technical services and value-added positioning that focuses on specific industry niches and larger national and international multi-plant accounts, while conceding smaller customer segments that may be more price sensitive and inclined to price shop digitally for the lowest commodity pricing.
The combination of IPH and Brammer into a larger entity creates a clearer differentiation between the value propositions of the smaller specialty distributors at a local level. As one distributor commented, “It creates some confusion in the market as the integration takes place and there is an emphasis on quarterly performance, and we have an opportunity to strengthen our customer relationships based on the local service we provide.” But, he added, “in five years I expect they will be a very tough competitor when they do integrate the companies, and we have to keep improving our value to compete effectively.”
The integration of the IPH and Brammer businesses is expected to take at least a few years. The deal could spark increased M&A activity by Descours & Caboud, Grainger and ERIKS, though ERIKS has not been as active among the primary industry consolidators.
The dealmakers
Advent International, headquartered in the U.S., has completed more than 325 private equity transactions in 40 countries and has $41 billion in assets under management. The company has a long history of investment into distribution. In the U.S., it orchestrated the 2010 merger of the largest roofing and exterior building products distributors, Bradco and ABC Supply, the No. 1 and No. 3 market competitors, to create the dominant industry consolidator, more than 2.5 times the size of its next largest competitor at the time. According to MDM research, ABC Supply’s 2016 revenues were $8.5 billion.
In 2011, Advent invested in Morrison Supply Co., now known as MORSCO, Fort Worth, TX. Chip Hornsby, former CEO of Wolseley Inc., was named CEO of MORSCO at that time. The company has grown aggressively through acquisitions, with 2016 revenues of more than $1.7 billion.
PAI Partners, London, has completed 61 transactions in 11 countries since 1994, representing €42 billion (US$46.8 billion) in transaction value. PAI provides the companies they own with the financial and strategic support required to pursue their development and enhance strategic value creation.
