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Changing the Game

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Changing the Game

Though not necessarily surprised by Signify’s intention to acquire Cooper Lighting, electrical distributors fear that selling those products may get harder before it gets easier.

 

On October 15, Signify announced its intention to acquire Cooper Lighting Solutions from Eaton for $1.4 billion. As part of the transaction, slated for completion by Q1 2020 and designed to strengthen Signify’s market position in the robust North American lighting market, the two companies pledge that their respective agent networks and front office functions “will continue to operate independently.”

While the move wasn’t necessarily met with surprise by many of the distributors lightED surveyed, a number have expressed concern over what the newly-merged company will look like, how the consolidation may affect them, and what this prominent acquisition could mean for the ongoing evolution of the lighting industry.

Caught by Surprise?

“I wasn’t so surprised by the announcement,” shared Brieanne Sulzer, lighting designer at The Lighting Design Center of Warshauer Electric in Tinton Falls, New Jersey. “It seems that the biggest guys are becoming ever-bigger.”

“I wasn’t shocked about the announcement either,” agreed Debra McCashin, director of energy solutions at East Dubuque, Illinois-based Crescent Electric. “I knew that when Eaton announced that Cooper Lighting was being spun off, Cooper would look more attractive for purchase by another lighting company.”

Stephen Shepps, LC, construction solutions manager at Harrisburg, Pennsylvania-based Schaedler Yesco Distribution, said that he was actually very surprised by the announcement. “I didn’t envision one of the big four stepping up to purchase Cooper Lighting from Eaton,” he said. “I thought that perhaps Legrand, Lutron, or even MLS might buy them to instantly become a major player in the U.S. lighting market, but I didn’t think that Signify would have any interest.”

Charles Dix, lighting segment manager at Cottage Grove, Minnesota-based Werner Electric, had a similar reaction. “I wasn’t surprised that Eaton got sold before going private since there was a lot of industry buzz that some lighting manufacturers were interested, but I was surprised that Philips/Signify was the manufacturer to make the move first.”

What’s Next?

As Dix sees it, “the announcement makes it clear that both companies will work on streamlining their back-office operations first to save money, so it would be only logical to assume that R&D and marketing would be the next areas they would tackle, followed by manufacturing and then sales,” he said. “I don’t think anyone thinks that it makes sense to operate both companies independently forever and compete in the marketplace against each other; sometime in the next 5-10 years you have to assume that products, sales, and agent representation will be consolidated into one brand name with one consolidated agent network,” Dix said.

Sulzer hopes that Signify takes the time to watch how Cooper Lighting currently operates before making any changes. “Cooper is a great company,” she said. “They manufacture innovative products that make sense for our market and respond well to our industry requirements.”

“I view this as a very similar situation to Philips acquiring Genlyte Thomas years ago, which is another reason why I was surprised by the purchase – I wouldn’t think that acquisition was something anyone would want to repeat,” Shepps said. As for the companies’ next move(s), he predicts that the next year or two will see a continuation of the status quo. “I believe that both brands will operate independently until eventually, they have to combine certain product lines to be more efficient and profitable,” Shepps said. “Sooner or later they’ll combine most of the product lines to compete with Acuity and Hubbell until they finally combine all of them to form one large company.”

McCashin similarly doesn’t see the companies operating separately for long. “Although they state that the businesses will operate independently, I do believe that consolidation of manufacturing, product, and back office resources will occur,” she said.

Impact on Distributor Sales

Following the merger, “I’m not confident that selling will get easier,” McCashin shared. “Any merger creates complications when it comes to service and responses. My fear is that things will get harder before they get better.”

“I hope that we don’t have long lead times and trouble getting pricing if Signify comes in and rocks the boat before seeing how great Cooper currently is,” said Sulzer, who’s been a longtime fan of Cooper Lighting based on their solid portfolio of high-quality products for all budgets and projects. “I always get nervous when I hear about mergers like this because I think back to the days when Philips took over Lightolier; at the time, I was with a large stocking distributor of Lightolier and the products and support that had been second nature for us to receive became drudgery after the takeover.”

Shepps doesn’t think that the acquisition will have any effect on lighting sales. “Acuity and Hubbell won’t be phased by it,” he said. “They’ll just wait to see if Signify/Cooper stumbles so that they, along with a hundred second-tier manufacturers, can grab market share.”

“I don’t see this merger making it harder to sell lighting in the immediate future,” Dix agreed. “But I have to think that some architects and end users might think twice about using Signify/Eaton products if they think that 5 or 10 years down the road, the products they used on earlier projects won’t be available anymore for add-on or replacement post-sales.”

The Future of Lighting

Our experts were concerned about what this acquisition could portend for the future of the lighting industry.

“As the cost of LED goes down, there’s no doubt that it’s causing stress on manufacturers,” Crescent Electric’s McCashin said. “Although unit sales keep rising, these manufacturers are struggling to make the profits that will enable them to keep their service levels up to meet customer needs, and imports are still causing challenges. I would assume that we’re going to see other manufacturers merging and selling off based on existing market conditions.”

Werner Electric’s Dix concurred. “We’ve seen the IDEAL/CREE purchase and now Signify/Eaton, so the acquisition trend will continue at a very brisk rate,” Dix predicted. “The LED industry is now maturing and the days of hundreds, if not thousands, of LED manufacturers will go away, and consolidation will result in fewer suppliers with a deeper product offering.”

“The big question to me is whether Signify/Cooper can maintain the market share they both currently have while operating separately,” Schaedler Yesco’s Shepps said. “As Signify/Cooper tries to figure out how to operate under the new Signify structure, how much share will Acuity and Hubbell take during the transition? Genlyte Thomas certainly lost share for years after Philips purchased them,” he noted. “I guess we’ll see how it goes this time.”

Dix believes that LED lighting has broken down the walls between specification-grade and general duty products and feels that the commoditization of the LED lighting fixture industry has begun. “Both Eaton and Signify are investing more money in controls as a way to distinguish their lighting solutions and solve customer problems, not just light up rooms,” he said. “In the future, customers will make decisions based on controls solutions first and just assume that the manufacturer can supply the fixtures needed to provide the light required.” According to Dix, “the engine of the sale will be controls and I think that Signify purchased Cooper to gain a deeper bench of control solutions.”

 

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Susan Bloomis a 25-year veteran of the lighting and electrical products industry. Reach her at susan.bloom.chester@gmail.com.

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