By just looking at the numbers, it’s clear that WESCO International Inc.’s acquisition of Anixter International Inc., which closed last week, is a truly market-shifting transaction for wholesale distribution.
This transaction unites the second- and third-largest electrical distributors on MDM's 2019 Top Electrical Distributors Market Leaders list. Anixter ranked No. 2 last year with $8.4 billion in annual revenue and WESCO ranked right behind it at No. 3 with $8.2 billion (Sonepar was the top player in electrical with $10.6 billion).
The acquisition, which began in December with Anixter’s opening bid, was valued at $4.5 billion, with WESCO paying $97 per share (up from the initial offer of $90 per share). The newly formed entity is a $17 billion juggernaut with $1.1 billion in pro forma adjusted EBITDA.
What’s more, WESCO now sells 1.5 million products and has $2 billion in inventory across three categories — electrical and electronic solutions; communications and security solutions; and utility and broadband solutions. And the company now operates a footprint of more than 300 cities in 50-plus countries, with over 18,000 employees worldwide.
But the impact of this deal goes well beyond these eye-popping numbers. That was the key message from the first segment of last week’s MDM Live. During a 20-minute conversation featuring MDM CEO Tom, Gale, Mike Marks of Indian River Consulting Group, John Gunderson of MDM Analytics and this reporter, it became obvious how this acquisition will upend the distribution marketplace.
The overall assessment: Look for all verticals to be disrupted as WESCO integrates its newest asset and takes on mega-distributor status.
“This isn't just about the impact on the competitive landscape of electrical,” Gale said. “This has repercussions across a lot of other channels.”
Let the Channel Expansion Begin
With its increased scale and scope, WESCO can target new verticals, the panelists said. For certain, the company is sure to move well beyond electrical as it manages the $200 million in synergies created by the Anixter acquisition and looks for ways to become indispensable to its massive customer base.
“This is a move that is going to affect so many channels,” Gunderson said. “If you're an industrial distributor, you're going to be affected by this because one domino is going to cause another domino to hit into the next one. It's the biggest move I’ve seen in the industry — and most of my career has been in electrical distribution — and I think these are two really strong players who are getting it together. It's not just going to affect the electrical channel, but the total channel.”
Look for the supersized WESCO to bring on additional categories, such as safety and industrial. The company has already proven itself a leader in what is considered “channel drift” (aka channel expansion or channel convergence), according to Gunderson and Marks. They said WESCO adeptly took advantage of a shift in channel power over the years from manufacturer to distributor.
“One of the things that WESCO did a great job on with their integrated supply is they became, early on, very customer-centric instead of supplier-agnostic,” Marks said. “When they would go to a customer, they started selling services and the product no longer mattered. The issue was, ‘How do I save the customer money? How do I make them more efficient?’ That started the drift.
“From a customer's point of view, I think customers are going to be excited about this deal because you're going to see some new solutions. And those people that are still doing the same stuff they did yesterday are going to see it as a threat.”
Look for more on the WESCO-Anixter deal in the July 10 edition of MDM Premium. And look for more from last week’s MDM Live in the coming days, including a summary of the discussion that Gale and Marks had with Jack Templin — president of Affiliated Distributors’ electrical and industrial business unit, and chief programs officer — on what he’s hearing from members and suppliers.
MDM Live is off this week for the Independence Day holiday but returns July 10 with more conversations with industry stakeholders on how distributors are navigating the COVID-19 crisis.