Genuine Parts Company (NYSE: GPC) has entered into a definitive agreement to acquire Kaman Distribution Group under GPC’s wholly-owned subsidiary, Motion Industries, Inc. The acquisition of KDG from private investment firm Littlejohn & Co. is valued at approximately $1.3 billion in cash, according to GPC. The transaction is expected to close in the first quarter of 2022.
Kaman Distribution Group was formerly a business unit of Kaman Corporation, which sold it to Littlejohn in 2019 for $700 million.
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The deal announced Thursday combines the No. 1 and No. 3 competitors in the fluid power sector, according to MDM’s Top Distributors list, with an expected add to Motion’s 2022 revenues of $1.1 billion. Motion estimates their 2022 revenue to be about $6.7 billion, with a 10% EBITDA margin of $670 million. Their calcs, outlined in an announcement call, map Kaman Distribution EBITDA margin in 2022 of 8%, or $94 million.
Combined, Motion is predicting 2022 revenues of $7.8 billion, pro forma EBITDA of $814 million, and 10.5% pro forma EBITDA margin. Historically, this sector has been defined by the top three – Motion, Applied and Kaman Distribution. For context, Motion reported 2020 revenues of $5.7 billion; Applied, the No. 2 player, reported 2020 revenue of $3.1 billion. KDG’s 2020 revenues were $1.0 billion.
KDG ranks No. 3 on MDM’s most recent Top Distributors list of power transmission/bearings distributors and No. 7 for top fluid power distributors. Motion, headquartered in Birmingham, Alabama, ranks No. 5 among the top 40, No. 1 in PT/bearings, No. 3 in fluid power and No. 23 in electrical, data and security.
MDM Analytics sizes the total U.S. power transmission, motion control and fluid power market sectors at $70 billion. Distribution channel opportunity, which factors out manufacturer-direct and alternate channel sales estimates, is framed at $35 billion or higher, based on the continued trend of product category expansion into automation, controls and industrial MRO by traditional channel leaders.
Regarding impact of the deal, one of the first comparisons has to be the blockbuster deal in 2020 in the electrical and datacom sectors: WESCO’s acquisition of Anixter. There is no doubt we will see this combination of direct and/or tangential competitors continue to spread across other sectors of distribution.
“Motion’s highly synergistic acquisition of KDG significantly enhances our scale and further strengthens our market-leading position,” says Paul Donahue, chairman and CEO of GPC. “In addition, this combination creates opportunities for accelerated long-term growth, profitability and cash flow.”
Headquartered in Bloomfield, Connecticut, KDG has 1,700 employees and more than 50,000 customers. Recently in acquisition mode itself, KDG in October announced its acquisition of integrator and inspection company Integro Technologies Corporation.
“We are very pleased to combine our two great businesses and leverage our collective resources and expertise to accelerate profitable growth,” says Ben Mondics, president and CEO of KDG.
Adds Donahue, “Our Motion team, led by Randy Breaux, is eager to bring together the world-class talent and industrial expertise of these two organizations to build an even stronger business. We look forward to extending our leadership position and creating significant shareholder value together as a premier leader in industrial solutions.”
Greenhill & Co., LLC acted as financial advisor to GPC. Baird served as financial advisor to Kaman Distribution Group on this transaction. Commenting on GPC’s strategic investment, Nick Troyer, a director at Baird, said “GPC/Motion’s partnership with KDG brings together two highly respected organizations. Our sense is that consolidation in the industrial solutions space will continue.”