safety products.
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DXP Enterprises is a distributor of pumps, bearings, power transmission, seals, hose, safety, fluid power, and electrical and general-line industrial supplies.
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While Precision is strong in the Midwest and East, DXP is focused on the Rocky Mountains, the South and Southeast. Precision also has locations on the West Coast. The two distributors share less than five cities in which they both have branches, Circo says.
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Also, the two distributors’ customer bases complement each other. Precision primarily serves food and beverage, transportation and general manufacturing, Circo says, while DXP is more focused on the oil and gas industry, with some sales into general manufacturing. The overlap is small, he says.
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DXP distributes its products from 38 service centers, 17 SmartSource (integrated supply) locations and two distribution centers.
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“I think the deal makes us a stronger player,” Circo says. “It puts us both in a position to compete more effectively for national commodity management programs across more product categories.”
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DXP History
DXP has been busy in the acquisition arena lately, with several smaller buys of industrial and safety supply distributors. Year-to-date the distributor’s sales are up 28 percent to $169 million. Sales by businesses acquired in 2006 and 2007 accounted for $23.5 million of the $36.7 million increase from the prior-year period. Organic growth was 10 percent.
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DXP has seen broad-based growth in its MRO segment (which accounts for a majority of the distributor’s sales) in recent years, according to its 2006 annual report, with organic growth in that segment up 45 percent in 2006 from the prior year. The distributor attributed the growth to an increase in sales to the oil and gas industry, as well as the mining, electrical generation and petrochemical processing industries. The sales increase was also attributed to “an improved economy and high energy prices.”
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In its 2006 annual report, DXP gave insight into how it views the competitive landscape in industrial MRO: “In the MRO segment we compete with a variety of industrial supply distributors, many of which may have greater financial and other resources than we do. Many of our competitors are small enterprises selling to customers in a limited geographic area.
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“We also compete with larger distributors that provide integrated supply programs and outsourcing services similar to those offered through our SmartSource program, some of which might be able to supply their products in a more efficient and cost-effective manner than we can provide.
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“We also compete with direct-mail distributors, large warehouse stores and, to a lesser extent, manufacturers. While many of our competitors offer traditional distribution of some of the product groupings that we offer, we are not aware of any major competitor that offers on a nondirect mail basis a product grouping as broad as our offering.
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“Further, while certain direct-mail distributors provide product offerings as broad as ours, these competitors do not offer the product application, technical design and after-the-sale services that we provide.”
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Precision Industries President and COO Chris Circo says the agreed-upon acquisition by DXP Enterprises, Inc., Houston, TX,  ; was for strategic reasons, and that Precision and its management would continue as usual for the foreseeable future. The deal was not made as an exit strategy for the family.
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We’re still young and we want to keep working as long as we are having fun,” Circo says. “This is the business that we want to be in and the business that we grew up in. We think we can continue to do a lot of good for the combined organizations.”
DXP Enterprises will acquire Precision Industries, Inc., Omaha, NE, for approximately $106 million. The deal nearly doubles the size of DXP.
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Precision has annualized 2007 sales of approximately $250 million.   ; DXP’s sales in 2006 were $279.8 million. Its sales this year will approach $340 million, based on first-half results. The sale is expected to close within the next 30 days.
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Precision is a long-time family-owned national industrial distributor with about half of its business in integrated supply. It has 160 locations. Precision has made at least five acquisitions since 2001, according to its Web site, and has greatly expanded its network nationwide in the past five years.
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While Chris Circo will remain as president, Dennis Circo, currently CEO, will transition to chairman emeritus as the CEO of DXP takes over the combined organizations.
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Decision to Sell
The Circos are excited about the fit they found with DXP.
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Chris Circo says Precision wanted access to capital to continue growing its business and meeting its customers’ needs. The distributor recently signed several new integrated supply contracts and customer demands, including better payment terms and inventory management, require a strong flow of capital. “It takes money to grow at a rapid clip,” Circo says.
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In addition, Circo says the company wanted to provide more opportunities for its employees as well as give them the chance to own a part of the company they work for. (DXP Enterprises is a public company.)
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The deal with DXP also means a larger footprint nationally and adds products to both companies’ first-tier offerings.
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“For us the financial piece is important but we could have sold to others for a greater amount if we were willing to consider that kind of consolidation strategy. & hellip; Dennis and I said that throughout the entire process, that if we can’t get it right, we’re just not going to do it.” Circo says the family was approached by private equity firms, but that direction was not the right one for Precision.
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Integration
The two companies are in no hurry to fully integrate their operations, Circo says. That will be done in a deliberate and well-planned manner. “We want to stay focused on our customers. In our industry and others when you consolidate organizations very rapidly you can lose focus. & hellip; I think you can point to the failures in this industry when people try to do that.
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“They lose share and they lose revenue. That’s the last place we want to be. Both companies are very focused on their customers, and we don’t want to do anything that will damage that relationship.”
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Eventually, certain divisions in the two companies will combine, but for now, Circo says, the companies are focused on serving the customers and carrying out new contracts.
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Complementary
Geographically and by product category, the deal is “a great fit,” Circo says.
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Precision sells a broad range of industrial supplies including abrasives and cutting tools, bearings, power transmission, electrical products, fasteners, fluid power, hand & power tools, janitorial products, linear products, lubrication, material handling, pipes, valves and fittings, rubber products and
