The announcement that MSC plans to buy Barnes Group's North American distribution segment is one of the largest acquisition announcements we've seen in some time. MSC said it would pay $550 million for the business, which reported unaudited sales for 2012 of about $300 million. According to MSC President and CEO Erik Gershwind, the rationale for the acquisition was based more on the capabilities, growth platforms and synergies the business will provide than its current earnings or growth.
During an investor conference call about the announcement, Gershwind said that the customer overlap between the two companies is relatively small and that the opportunity to sell MRO products to Barnes Distribution North America customers and to sell low dollar, high-turn consumables such as fasteners to MSC customers is great, and an obvious driver behind the acquisition.
Another benefit is the customer stickiness MSC hopes to gain through adding Barnes' vendor managed inventory program to their own. "We've already seen from our vending initiative that embedding ourselves in our customers as an inventory management partner translates into high retention rates, deeper account penetration and higher growth. Our history shows that once you become a customer's preferred supplier, there's a tremendous opportunity to sell a much broader selection of MRO products," Gershwind says.
About 95 percent of BDNA's business comes through the VMI channel, Gershwind says, something MSC hopes will strengthen its own value proposition. "We'll broaden MSC's inventory management solutions, from the production floor to the tool crib," he says.
The vending of Barnes' "class C" products such as fasteners, fittings and fuses, may not be part of the plan. "Given the low dollar value of the items and consumables, vending doesn't necessarily make the best sense for this portion of the market." Barnes' existing VMI program, he says, is already well-suited to broaden MSC's reach into different segments of each plant or facility, further entrenching MSC into accounts. The low price point of the products also means customers may be less likely to price shop.
The abilities and reach of Barnes' sales force is another incentive. Gershwind says the gain of Barnes' sales team, a team he says is skilled in solutions selling, will extend MSC's sales reach to almost every ZIP code in the U.S. The team will also support MSC's strategy to entrench themselves within existing and acquired accounts.