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MSC, Wesco on Recent & Pending Acquisitions

million and expects 2006 sales to reach $600 million. The company is a national distributor of low-voltage network infrastructure and industrial wire and cable products. It has 32 branches, a sales force of more than 300 associates, and its marketing focuses on Fortune 1000 and large institutional customers in the U.S. The acquisition will close in November.

When announcing the acquisition, Wesco said its intent is to capitalize on the acquisition by offering a broader array of products to Wesco’s national accounts, contractor and other customers. It also said the “fragmented nature of the low-voltage and data communications supply industry will likely lead to additional acquisition opportunities.”

Wesco has already identified integration teams with Carlton-Bates the distributor had 30 integration teams in several areas including sales margins, facilities, IT platforms, distribution and suppliers. It plans a similar setup with CSC.

Wesco, distributor of electrical MRO products and construction materials, reported sales in the third quarter 2006 were $1.34 billion, an increase of 18.7 percent from the same period last year. Profit was $59.4 million, versus $25 million last year.

Sales for the nine months ended Sept. 30, 2006, were $3.94 billion, a 23.9 percent increase from last year. Sales from two acquisitions for the first nine months were $317 million. Profit for the 2006 YTD period was $159 million.

Wesco has seen double-digit organic sales growth for the past 10 quarters, which it attributed to pricing discipline, improvements in its base business and the strong performance of acquisitions made in 2005.

Commodity and product cost pressures will continue at a moderate pace, Van Oss said, with commodity pricing having less impact than it did in the second quarter 2006. Wesco has relatively little stake in the residential end market, so it foresees little impact from declines in housing.

“Roughly 20 percent of our business is focused on electric utility, transmission and distribution end markets, so we are well positioned to capitalize on the forecasted increase in spending on maintenance and automation of the nation’s electric power grid,” Van Oss said. In addition, Wesco is bullish on industrial markets.

MSC Industrial Direct Inc. and Wesco Distribution recently held conference calls on their respective quarterly earnings. MSC discussed market conditions and the integration of J& L as well as year-end results; WESCO addressed its pending Communications Supply Holdings acquisition. Here’s a summary of the respective company calls.

MSC Industrial
In line with recent reports of a coming deceleration in manufacturing activity, MSC Industrial Direct executives say they have already seen slower growth in first quarter fiscal 2007 than in fourth quarter 2006.

Still, in the last several days we have begun to see more strength,” said CEO and President David Sandler. “MSC has historically grown revenues in excess of industrial growth, and we believe we are well positioned to continue to do so.”

MSC, Melville, NY, a distributor of MRO supplies to industrial customers, had sales of $1.32 billion in fiscal 2006, a 19.8 percent increase over fiscal 2005. Profit was $136.4 million, an increase of 21.5 percent. Results are for fiscal year ended Aug. 26, 2006.

Sales in the fourth quarter grew 39.4 percent to $385.9 million. J& L Industrial Supply, acquired from Kennametal in second quarter 2006, contributed $67.9 million in sales in the fourth quarter. Profit in the fourth quarter rose 21 percent to $34.1 million.

MSC reported it continues to see healthy demand across its end markets, and that its efforts to expand on the West Coast have resulted in strong growth. The distributor has opened four branches in California. Customer sales growth in the West has been greater than the company’s overall growth rate, Sandler said. “The opportunity to increase market share in this region is enormous,” he said.

The integration of J& L is on plan and budget MSC expects $20 million in margin improvement and operating synergies from the merger. The systems integration should be complete by the spring.

As a result of the acquisition, MSC will fold J& L’s two U.S. distribution centers into MSC’s logistics network and will service existing pick-up businesses in Chicago and Detroit from showrooms “basically branches with inventory.” All shipping will come from MSC’s fulfillment centers, Sandler said.

In addition, MSC plans to establish a regional accounting center in J& L’s current headquarters. J& L and MSC sales forces are now operating as one, Sandler said, and MSC has started rolling out its catalog to J& L customers.

The 2007 Big Book, released in September, has a new section featuring Kennametal products. “We think the addition of the Kennametal products gives us the most comprehensive metalworking offering in the market today,” Sandler said. Pricing increase in the Big Book was “north of 1 percent” year-over-year, a smaller increase than last year.

MSC anticipates between $398 million and $404 million in sales in the first quarter 2007.

Daily sales growth for MSC in June was 15 percent; July 12.5 percent; August 16.9 percent. For J& L, daily sales growth pro forma was 10.7 percent; 12.9 percent July; and 15.3 percent August.

Sandler said private label, national accounts and vendor-managed programs are key to MSC’s strategy in the coming years. For competitive purposes, Sandler would not elaborate except to say each was moving in a “positive direction.”

As electrical distributor Wesco is still under a confidentiality agreement with the private equity sellers of Communications Supply Holdings, CFO Steve Van Oss could not give many details on the acquisition.

“We are excited about the prospects of combining our businesses. We have had positive reaction from suppliers and customers,” he said. The sale price was 9.5X-9.7X EBITDA, Van Oss said.

CSC, the operating subsidiary of Communications Supply Holdings Inc., Carol Stream, IL, had 2005 sales of $431

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