By Jack Keough
WESCO International, the giant electrical, datacom and MRO distributor, had a good third quarter with net sales increasing by about 5% but its acquisition strategy is further positioning the Pittsburgh-based company for growth in the future. In releasing its quarterly numbers last week, the company reported that acquisitions positively impacted sales 4%.
Acquisitions have become an important driving force for the huge distributor as it seeks to expand its footprint far beyond the United States and into Canada and South America as well.
WESCO has completed seven acquisitions since 2010 with annual sales of $580 million as of their closing respective dates. In July, WESCO completed the acquisitions of Trydor Industries and Conney Safety Products. Trydor, a British Columbia company, distributes and services high voltage electrical products. The acquisition, bought for an undisclosed amount, was designed to bolster WESCO’s presence in Canada.
The acquisition of Conney allows WESCO to broaden its product offering to new customers in new markets.
And last week, WESCO expanded its Canadian presence and beyond in what company officials called a “milestone transaction” in which it acquired EEOCL Electric in Canada for a purchase price of C$1.14 billion. WESCO described the purchase as a “significant event” for the company.
EECOL was founded in 1919, is one of Canada’s premier full-line distributors of electrical equipment, products and services with approximately 57 branch locations in Canada and 20 locations in South America in the countries of Chile, Peru Argentina and Ecuador. EECOL has an effective warehouse-based business model focused on serving a broad set of more than 20,000 customers in the commercial and residential construction, industrial, oil and gas, mining and utility industries. In 2011, about 10% of EECOL’s sales were in South America, where the company has offices in Chile, Peru, Argentina and Ecuador.
WESCO has been in Canada since 1922 and the company employs 1,100 people there.
Prior to this deal, the largest acquired company in terms of annual sales, was TVC Communications, which had annual sales of $300 million, in December 2010.
The addition of EECOL expands WESCO’s presence in western Canada and enhances WESCO’s ability to grow and capitalize on the ongoing investments the company has made across the Canadian market
EECOL’s annual sales are approximately $0.9 billion with low double digit EBITDA margins. The company has established a long and successful track record of delivering above market sales growth and profitability. In a press release WESCO said, “We have a high regard for the EECOL sales culture, their team of more than 1400 associates and their outstanding customer service capabilities and supplier partnerships, all of which complement WESCO very well.”
The company expects the EEOCL deal to be completed in the fourth quarter pending regulatory approval.
In releasing its third quarter earnings statement, company officials said they were pleased with their results in delivering strong earnings and cash flow but also indicated they see moderating demand levels in end markets.
“We delivered another strong quarter of earnings growth and cash generation against the backdrop of moderating demand levels in our end markets,” CEO and Chairman John Engel said.
Engel told financial analysts in an earnings call as reported by SeekingAlpha.com that “…organic sales per work-day were up in all four of our end markets: industrial, construction, utility and CIG. But sales momentum slowed considerably. The declines in organic sales momentum were principally driven by data communications and government which were down approximately 6% and 10% respectively.”
Company executives pointed to four of the acquisitions helping growth in the quarter. Brews Supply with annual sales of approximately $50 million was acquired in October 2011. RS Electronics with annual sales of approximately $60 million was acquired in January of 2012. And then in the third quarter WESCO rolled in the acquisitions of Trydor with annual sales of approximately $35 million and Conney with annual sales of approximately $85 million.
“As we move through the fourth quarter, we’re operating with a much stronger and more diverse business – stronger and more diverse in terms of customers and end markets, products and suppliers and geographies. Our long-term outlook for a multi-year economic recovery remains unchanged. We expect the economy to continue to recover slowly over the next several years,” Engel said.
Engel expects fourth quarter consolidated sales growth of approximately 2% to 4% above last year’s fourth quarter and that would include acquisition-related growth of approximately 2% to 3%. Year-over-year organic sales growth is expected to be flat to up 1%.
The company also sees the lighting markets, including retrofitting, as a solid area of growth.
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Jack Keough was the editor of Industrial Distribution magazine for more than 26 years. He often speaks at many industry events and seminars. He can be reached at john.keough@comcast.net or keoughbiz@gmail.com
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