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MSC Continues Strong Acquisition Pace with AIS Deal

MSC Continues Strong Acquisition Pace with AIS Deal

May 1, 2018

At a multiple sure to get attention, MSC Industrial Supply Co. (NYSE:MSM), Melville, NY, has acquired All Integrated Solutions (AIS) from the New York private equity firm High Road Capital Partners. AIS is a distributor of industrial fasteners and components, MRO supplies and assembly tools based in Franksville, WI. The deal has several story lines that add to how the 2018 competitive landscape is shaping up.

First, let’s look at the multiple. In an email today, Baird Senior Research Analyst Dave Manthey noted that the purchase price of $86 million implies an EBITDA multiple in the low double-digits. AIS has annual sales of $66 million. (Dave provides a great analysis of the deal; Baird is MDM’s partner in the quarterly MDM/Baird Distribution Survey; to get on the Baird Equity Research email for the industrial distribution sector, email Dave at dmanthey@rwbaird.com.)

Second, there is a great cross-sell fit for MSC with AIS. The deal may not be as eye-popping as MSC’s acquisition of Barnes Distribution North America in 2013, but there are some important parallels. MSC bought Barnes for $550 million; Barnes reported 2012 revenues of $300 million. In this AIS deal, MSC gains share and account access into six upper-Midwest states with a company that has traits of both Barnes and MSC – Class C fastener and vendor-managed inventory solutions, and a metalworking and MRO product portfolio with an emphasis on value-added services.

The deal is a further investment in MSC’s strategy to strengthen its competitive moat against the increasing margin and commoditization pressures of digital channels to provide customized services – to embed the company as a supplier into its customers’ frontline work flows as specialists.

MSC plans to maintain AIS's operations, providing the company's customer base access to MSC's 1.5 million-plus product portfolio to support their full metalworking and MRO needs. Similar to its acquisition of Barnes, MSC will extend AIS's production fastener and VMI solutions to MSC's manufacturing customers.

The deal also contains an interesting mix of the industry consolidation themes of family business, private equity and strategic buyers. AIS is an outgrowth of a three-generation family distribution company, with two divisions run by second-generation brothers – All Tool Sales and All Fasteners. In 2013, private equity firm High Road Capital Partners’ portfolio company Accurate Components & Fasteners, New Brighton, MN, acquired All Tool Sales. Though public, MSC has third-generation family leadership in its president and CEO, Erik Gershwind.

This is MSC’s second significant deal in the last year. Last August it bought $100-million industrial distributor DECO Tool Supply, Davenport, IA. And as Manthey noted in his analysis, with an estimated pro-forma leverage ratio still below 1.5x EBITDA, MSC has plenty of financing room for more acquisitions.

Side note on this deal: As a resident of Minnesota for more than two decades (pre-2000) and someone close to upper Midwest industrial distribution markets for closer to four decades, I’m also reminded that this latest MSC deal is another indication of the strength of that region’s highly fragmented manufacturing markets when you consider the Würth Adams platform business out of Minneapolis and many other strong fastener and MRO distributors from Nebraska over to Chicago and beyond.

© 2019 Gale Media, Inc.

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