Commentary: A Little Context on the Fight for IDG - Modern Distribution Management

Log In

Commentary: A Little Context on the Fight for IDG

Why have three investors been raising the price for Industrial Distribution Group (IDG), the traditional whipping post of the investment community?


Last year, when IDG's board pursued an exit strategy to free itself from the constraints of public ownership, the M&A market in distribution was still near its peak. In a year's time, we have shifted dramatically from a financial frenzy to a quieter, more strategic buyer's market. In today's risk-averse debt markets, show me the money has taken on new meaning in the bidding war for IDG.

The three bidders active in this deal -Platinum Equity (owns Strategic Distribution), Luther King Capital Management (owns 15 percent of IDG stock), and WESCO (owns Bruckner Supply) -know the strengths and weaknesses in IDG. Based on ...
Author
Date

Why have three investors been raising the price for Industrial Distribution Group (IDG), the traditional whipping post of the investment community?

Last year, when IDG’s board pursued an exit strategy to free itself from the constraints of public ownership, the M&A market in distribution was still near its peak. In a year’s time, we have shifted dramatically from a financial frenzy to a quieter, more strategic buyer’s market. In today’s risk-averse debt markets, show me the money has taken on new meaning in the bidding war for IDG.

The three bidders active in this deal -Platinum Equity (owns Strategic Distribution), Luther King Capital Management (owns 15 percent of IDG stock), and WESCO (owns Bruckner Supply) -know the strengths and weaknesses in IDG. Based on IDG’s performance, the winning bidder has to take the long-term approach to extracting value from this deal.

IDG’s history is arguably a Murphy’s Law case study in roll-ups. The company dealt -very publicly -with one issue after another. IDG formed with an initial public offering in 1997 with the roll-up of nine strong regional companies. The company had annual sales of $250 million. By the end of 1999, the company had grown through acquisition to 13 hub operating companies and 65 operating locations in about half of the top 75 U.S. industrial markets, with $542 million in sales. But the company suffered major growing pains.

It went through a series of presidents/CEOs trying to align independent former owners. It wrote off $5.6-million pre-tax in 1999, part of litigation involving one of IDG’s founding companies, as well as severance costs for terminated executives. In 2000, it wrote off $15.1 million in its failed implementation of J.D. Edwards software just as the industrial economy was tanking and its customer base was shrinking.

But IDG, unlike many other roll-ups, was a survivor. The three bidders in this deal are either direct competitors or a significant owner of IDG. In the tightening industrial and integrated supply markets, we are seeing how these assets are being valued by these strategic bidders. WESCO gave its answer by withdrawing when the stakes were raised earlier in the week.

An added wrinkle is that IDG’s lower-margin integrated supply business has increasingly accounted for more of its revenues. It just stretches probability for payback further out. At least two buyers feel the rewards are there in this higher-risk environment.

Share this article

About the Author
Recommended Reading
Leave a Reply

Leave a Comment

Sign Up for the MDM Update Newsletter

The MDM update newsletter is your best source for news and trends in the wholesale distribution industry.

Get the MDM Update Newsletter

Wholesale distribution news and trends delivered right to your inbox.

Sign-up for our free newsletter and get:

  • Up-to-date news in a quick-to-read format
  • Free access to webcasts, podcasts and live events
  • Exclusive whitepapers, research and reports
  • And more!

2

articles left

Want more Premium content from MDM?

Subscribe today and get:

  • New issues twice each month
  • Unlimited access to mdm.com, including 10+ years of archived data
  • Current trends analysis, market data and economic updates
  • Discounts on select store products and events

Subscribe to continue reading

MDM Premium Subscribers get:

  • Unlimited access to MDM.com
  • 1 year digital subscription, with new issues twice a month
  • Trends analysis, market data and quarterly economic updates
  • Deals on select store products and events

1

article
left

You have one free article remaining

Subscribe to MDM Premium to get unlimited access. Your subscription includes:

  • Two new issues a month
  • Access to 10+ years of archived data on mdm.com
  • Quarterly economic updates, trends analysis and market data
  • Store and event discounts

To continue reading, you must be an MDM Premium subscriber.

Join other distribution executives who use MDM Premium to optimize their business. Our insights and analysis help you enter the right new markets, turbocharge your sales and marketing efforts, identify business partners that help you scale, and stay ahead of your competitors.

Register for full access

By providing your email, you agree to receive announcements from us and our partners for our newsletter, events, surveys, and partner resources per MDM Terms & Conditions. You can withdraw consent at any time.

Learn More about Custom Reports

Request a Market Prospector Demo

  • This field is for validation purposes and should be left unchanged.