Within the first two months of 2024, Ferguson — one of the top industrial wholesale distributors in the country by total revenue — looks to already be on track to eclipse last year’s impressive number of acquisitions.
In the last five years, the serial acquirer has completed over 50 deals, with eight in 2023 alone. Between its announcements on August 2023 and January 2024, Ferguson has made six bolt-on acquisitions primarily in the plumbing and HVAC market and isn’t showing signs of letting up.
“In the last several years, you’ve seen us turn our [acquisition] focus to some really attractive long-term structural opportunities in the marketplace,” Ferguson Chief Financial Officer Bill Brundage told MDM.
While Ferguson considers itself an organic growth company, aiming to drive growth first through investment in its roughly 35,000 associates and building out new capabilities for its customer group through its more than 1,750 locations, there’s no doubt that its aggressive bolt-on acquisition strategy has added another dimension of expansion.
The distribution giant — which ranks numerous times on MDM’s Top Distributors Lists each year — has become well known for its acquisitions, which enable it to further consolidate the fragmented market it serves and give it the ability to offset modest declines in organic revenue within challenging market conditions. The company is predominantly known as a distributor of plumbing and HVAC products, but its portfolio also has a considerable presence in industrial MRO, construction supplies and more.
“We believe our markets are going to grow long-term, north of GDP. We’re going to outperform that market organically and then we’re going to complement that — we’ve said generally with about 1 to 3% of additional revenue from acquisitions year in, year out, and that’s really played through our history,” Brundage said. In any given year, Ferguson’s roughly $30 billion will include between $300 to $900 million worth of revenue from acquisitions. In fiscal year 2023, the company invested just over $600 million in its eight acquisitions, which accounted for $780 million in revenue.
The core plumbing and HVAC industry Ferguson services comprises more than 10,000 small- and medium-sized independent distributors operating in the range of $10 to $300 million in revenue. Where there’s a gap in the geographic distribution footprint across the nine customer groups it services, or there’s the lure of new capabilities or diversification, there’s a chance Ferguson may be eyeing a purchase to bolster its portfolio and offering.
Luckily, the similar fragmented nature of the markets creates the opportunity for a “robust pipeline of potential deals” and a high probability of bringing those deals to fruition, Brundage said. It’s a market-by-market strategy rather than a particular geographic focus.
“We’ve got a strategic targets list … and a healthy pipeline that we’re working both locally and nationally,” Brundage said. “And it is a core part of our growth strategy and will continue to be so for years to come.”
Ferguson Eyes Dual-Trade Contractors
Based on its total revenue of $28.6 billion in 2022, MDM’s 2023 Top Distributors List charted Ferguson at No. 1 for plumbing, No. 2 for HVACR, No. 2 for industrial PVF, and No. 3 overall for industrial supplies.
Besides its core offering, Ferguson also charts in safety, JanSan, MRO industrial and building materials/construction. Check out where it ranks on MDM 2023 Top Distributors Lists.
The distributor has dominated the plumbing market and has been trailing close behind in HVAC, holding strong in the Top 3, according to MDM’s annual analysis of the market.
Its strong dual-focus in these complimentary industries mirrors a trend in the marketplace: the dual-trade contractor.
“More and more, we’re seeing our customers combining and offering both plumbing capabilities as well as HVAC capabilities,” Brundage said. “If you look at that market in total residential trade plumbing and HVAC, it’s about a $100 billion market opportunity. We have a leading plumbing business in the industry. We also have a leading HVAC business in the industry. So we … have a great opportunity to bring together our capabilities and service the marketplace.”
When we boil down some of Ferguson’s most recent acquisitions, it exemplifies this strategy in a snapshot:
- Bruce Supply Corp.: A plumbing distributor that serves commercial, mechanical, residential, HVAC and fire and fabrication contractors in the New York City metro region.
- The Kennedy Companies: A waterworks distributor of piping and related water, storm, sewer and erosion control products on the East Coast.
- S. G. Torrice: A distributor of HVAC equipment, parts and supplies in New England.
- Yorkwest Plumbing Supply: A distributor of plumbing, HVAC, municipal, hydronics, institutional, and industrial products in the greater Toronto area.
- Grove Supply: A plumbing and HVAC distributor serving the residential trade, builder and remodel markets on the East Coast.
Ferguson Builds Out New England HVAC Presence
Ferguson’s recent acquisition of the New England-based HVAC equipment and supplies distributor S.G. Torrice is a perfect example of the company’s dual-contractor focus.
S.G. Torrice has 15 locations across Maine, Massachusetts, New Hampshire, Rhode Island and Vermont, a market in which Ferguson has historically had a strong plumbing presence but an under-penetrated HVAC market share.
“We identified a great potential acquisition that had a number of locations, a strong leading position in the marketplace, and was partnered with a great OEM [vendor] of ours,” Brundage said. S.G. Torrice distributes residential and commercial HVAC equipment, parts and accessories from Trane, American Standard and Mitsubishi, among other OEMs.
He added: “The strategy really looks at it market-by-market and determines: is it best to grow organically … or is there a better opportunity to [grow through acquisition?]”
S.G. Torrice President Stephen Torrice said that once he decided to sell the decision to partner with Ferguson was an “easy choice.” In a news release from the company’s financial advisor in the deal Mirus Capital Advisors, he cited Ferguson’s people-first culture, dedication to the customer experience, and depth of product and offerings for that choice.
“This sale strengthens our regional presence, improves our supply chain, and allows us to better serve our customers,” Torrice said.
From Deal to Integration
Deal valuation talks with potential acquisitions can range from a few months to two years, depending on a multitude of different dynamics. But once the deal goes through, integrating the new business into the Ferguson fold is the top priority.
The first order of business? ERP integration.
In some circumstances, Ferguson will put a company on its technology platform on Day 1 of the deal. But, more generally, within 6 to 12 months the new company will be migrated over to unlock the value and capability of the acquisitions.
Being a nearly $30 billion revenue distributor, Ferguson offers smaller distributors that become acquired an established global supply chain and sourcing network with roughly 36,000 suppliers manufacturing products, technology investments and brick and mortar branches.
Ferguson’s local leadership team spread throughout the country develop relationships with competing distributors and deep ties in their local markets. By the time the company identifies a potential acquisition, in most cases, leadership teams have already had years and years of relationships, whether competitive or through industry events, Brundage said.
Through the years, Ferguson has even padded its leadership team with talent through those acquisitions.
“When we do an acquisition, we’re certainly buying assets like locations and inventory, trucks, etc. … But what we’re really gaining in that deal is fantastic associates with great talent and great capabilities, as well as wonderful customer relationships,” he said. “The real reason we do deals is for the associates: their knowledge and the relationships they bring. The focus for us from an integration perspective is on bringing those associates into the Ferguson family, on opening up new career opportunities for them, and then bringing the capabilities that we offer as a $30 billion organization to those associates and to their customers.”
