UPDATE: IDG to Accept Luther King Capital Management Bid
UPDATE: WESCO Drops Bid for IDG
WESCO’s last-minute catch of Industrial Distribution Group is a good fit with its Bruckner Supply business, focused on integrated supply, together with its strong electrical distribution business into industrial accounts. It’s also a good fit from a broader perspective in terms of where WESCO is positioned with international competitors in North American markets.
Most industry observers look at IDG’s checkered ten-year history as a public company, specifically its sluggish earnings reports, and see an under-performing distribution business. Not unlike Strategic Distribution, which is important to note as it is owned by the very company that in fact had a deal with IDG to take IDG private: Platinum Equity. Platinum also owns Ryerson, a metals distributor with a somewhat similar history.
As the ink was drying on the contract, bidders raised the stakes by more than 14 percent of what Platinum offered ($113 million). And while two of the three bidders were private equity and mystery strategic bidder D, whom we now know is WESCO, you could argue that all three companies are really strategic buyers when you dig a little deeper. That explains in part why there was competition for IDG.
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In late 1997, nine general-line industrial distribution companies took their roll-up public to merge into a $251-million national public company. Since day one, IDG has arguably become a classic case study for the problems and pitfalls of roll-ups, despite the real value of what those nine companies created independently, most of them over many decades and multiple generations of management/ownership.
What WESCO and the other bidders recognized is that IDG has largely done a great job preserving and growing customer relationships. It is very competitive in its markets. It strayed and moved away from its core distribution business, but last year refocused on its core competency. There is good reason to think that IDG has been undervalued since the beginning and never really took flight because it always had one issue or another to deal with.
My conclusion is that in today’s consolidating markets, you have to look well past the financials to determine the real value of relative competitive position, customer loyalty and retention. Those are more qualitative and difficult to measure, but will be more meaningful to assessing the real long-term value of a company. It’s a great match. WESCO has the operational strength to unlock IDG’s potential, while gaining entry into new customers for its core electrical business. I expect we will see more deals like this ahead, across product sectors, where customer segment strength is the real prize.
