The 2020 Mid-Year Economic Update_long

From Start to Finish: Private Equity Case Studies

Financial buyers have snatched up companies big and small with the goal of growing and later selling in hopes of a high return on investment. Here’s a look at two deals:

WESCO Distribution (electrical)

Who: Clayton, Dubilier & Rice, New York

When: February 1994

The Details: WESCO was the electrical products distribution unit of Westinghouse Electric. According to CD& R, WESCO was losing money, sales and employees as part of Westinghouse. CD& R acquired the captive unit from Westinghouse for $330 million.

Attractive Qualities: WESCO was one of only four national electrical products distributors serving large construction, industrial, institutional and government contractors; as a player in a large, stable and unconcentrated market, it faced limited risk that technological change could undermine its position.

Results: In a little over four years, WESCO’s sales doubled and profits surged as a result of changes made by CD& R. These included investments in IT and stripping away decision-making layers in the company. WESCO also began a strong push into outsourcing and value-added services. The company acquired more than $500 million worth of annualized sales over four years. In June 1998, CD& R sold WESCO to private equity firm The Cypress Group for six times the initial investment. WESCO was eventually taken public; it had $4.4 billion in sales in 2005. (Source: Clayton, Dubilier & Rice)

Beacon Roofing Supply (building materials)

Who: Code Hennessy & Simmons LLC, Chicago, IL

When: August 1997

The Details: Beacon founder and majority owner Andrew Logie sought a partner in 1997 to help him grow the business, which at that time had about $72 million in sales. The company operated in the Northeast and wanted to expand throughout the East Coast and Canada.

Attractive Qualities: Beacon was a regional market leader with opportunities to expand organically and through acquisitions; Logie would be staying with the company as CEO and significant owner. Also, Beacon had a high percentage of maintenance and repair projects to insulate it from construction cycles, and a highly fragmented customer base of large and small commercial and residential roofing contractors.

Results: Beacon priced its IPO in September 2004. The IPO resulted in a return of 9.5 times Code Hennessy & Simmons’ initial investment. Beacon went from $72 million in sales in 1997 to $850 million in 2005. (Source: Code Hennessy & Simmons LLC)

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