SPECIALTY DISTRIBUTION

Transcription

1 Investment banking services are provided by Harris Williams LLC, a registered broker-dealer and member of FINRA and SIPC, and Harris Williams & Co. Ltd, which is authorized and regulated by the Financial Conduct Authority. Harris Williams & Co. is a trade name under which Harris Williams LLC and Harris Williams & Co. Ltd conduct business.

2 WHAT WE RE READING THE 4 CORNERSTONES OF DISTINCTION IN DISTRIBUTION Thanks to the Internet, more products than ever before are becoming commoditized. After all, anyone can search online to find just about anything, so what's left to compete on? You need to make your business distinctive, according to Scott McKain, founder of McKain Performance Group Inc. To stand out in an increasingly crowded market, distributors must develop four "cornerstones of distinction," McKain notes: - Clarity: If you don't understand what makes you different, how can you expect your customer to understand it? - Creativity: Don't get caught up in doing the same thing you've always done or what your competitors are doing. What can you do to stand out from the competition? - Communication: Sales is no longer about providing information. It's about providing insight. - Customer experience focus: Distribution is not just a transactional business. Making sales is a big part of the goal, but your customers likely aren't going to remember the transaction. They're going to remember the experience. Please read the article here. A UNIFYING VISION FOR DISTRIBUTION AND THE ROBOT REVOLUTION Robots, in the not-too-distant future, will evolve from an advanced technology to a critical component of infrastructure, akin to the ERP systems that form the information backbone of most distributors today. Creating a unifying vision to integrate robots into your organization is the first step towards that competitive advantage. Companies that focus their attention narrowly on tasks that can be automated today will miss out on seeing around the edges and harness the power of robots. Traditional process levers such as lean and value stream analysis have already enhanced the loading, putaway, and retrieval activities in most distributors warehouses. The next frontier will emerge from robots. Robots are quickly reaching a liftoff point. The convergence of increased automation of manual jobs, the available technology to power complex tasks, and a decreasing cost curve will only accelerate the pace of robot-assisted distribution. Please read the article here. AMAZON'S FUTURE DRONES MAY GET "BRING IT TO ME" FEATURE Details now revealed in an Amazon patent application suggest that if its Prime Air drones do materialize, they might not just be limited to making house calls. The application outlines plans for drones that track a customer's GPS position, flagging the possibility of having items brought to a commercial user at the jobsite, or when a consumer is out and about. With the implementations described, a user now has the ability to choose "Bring It To Me," the patent states. "With this option, the actual location of the user is determined and the drone delivers the item to the current location of the user... For example, the user may identify their current location by allowing GPS data to be provided by their mobile device. Since the initial announcement, Amazon has grappled with the FAA in an effort to fast track its testing. Slow progress has moved the company to test the drones just north of the Canadian border, while continuing to lobby the authorities to accommodate its needs inside the US. CONTENTS WHAT WE RE READING PUBLIC COMPARABLES & TRADING VALUATIONS M&A AND PUBLIC MARKET TRENDS NOTABLE M&A ACTIVITY ECONOMIC UPDATE GROUP OVERVIEW Harris Williams & Co. is a leading advisor to the specialty distribution market. Our significant experience covers a broad range of end markets, industries, and business models. This particular report focuses on trends and metrics in the following areas: Specialty Catalog and Direct Marketing Branch-Based Distributors Route-Based Distributors Automotive and Heavy Duty Aftermarket Building and Construction Products Consumer & Food Service Industrial, MRO, and Safety Healthcare Technology Electrical and Communications Alcohol, Tobacco, and Firearms CONTACTS Bob Baltimore Managing Director bbaltimore@harriswilliams.com +1 (804) Derek Lewis Managing Director dlewis@harriswilliams.com +1 (804) Dave Kennedy Director dkennedy@harriswilliams.com +1 (804) Marshall Croft Vice President mcroft@harriswilliams.com +1 (804) Please read the article here. PAGE 1

3 PUBLIC COMPARABLES & TRADING VALUATIONS Key Trading Stats As of May 15, 2015 ($ in millions, except per share amounts) SPECIALTY DISTRIBUTION PUBLIC COMPARABLES Stock Performance Revenue Current 1-Month 1-Year % of LTM Margins TEV/EBITDA Growth TEV Price Change Change LTM High EBITDA Gross 2015 LTM 2015E 3-Yr. CAGR Automotive & Heavy Duty Aftermarket AutoZone, Inc. $25,784 $ (1.1%) 30.6% 97.2% 21.8% 52.2% 12.1x 11.5x 5.5% O'Reilly Automotive Inc. 23, % 51.1% 95.6% 20.8% 51.7% 15.0x 13.9x 7.6% Genuine Parts Company 14, % 10.9% 86.3% 8.3% 29.9% 11.6x 10.9x 6.9% LKQ Corp. 9, % (4.5%) 93.2% 11.7% 39.2% 12.4x 11.1x 25.1% Dorman Products, Inc. 1, (3.7%) (13.1%) 84.3% 19.9% 38.1% 10.9x 9.9x 12.7% Uni-Select Inc. 1, (1.7%) 24.8% 94.0% 5.1% 29.9% 12.7x 13.6x (0.8%) Median (0.2%) 17.9% 93.6% 15.8% 38.7% 12.2x 11.3x 7.2% Mean 0.7% 16.7% 91.8% 14.6% 40.2% 12.4x 11.8x 9.5% Building & Construction Products CRH plc $26,753 $ % 2.2% 96.7% 8.6% 29.3% 14.1x 11.2x 1.5% Wolseley plc 17, % 6.3% 93.7% 6.6% 28.0% 12.8x 10.9x (0.6%) Watsco Inc. 4, % 22.3% 95.1% 8.4% 24.4% 13.6x 13.0x 9.1% Beacon Roofing Supply, Inc. 1, (0.5%) (7.8%) 88.3% 5.4% 22.9% 13.3x 10.7x 6.2% Builders FirstSource, Inc. 1, % 74.0% 91.7% 3.8% 22.5% 26.2x 18.3x 24.9% Boise Cascade Company 1, (3.6%) 42.1% 81.2% 5.6% 14.3% 7.7x 7.7x 0.0% Median 1.4% 14.3% 92.7% 6.1% 23.6% 13.5x 11.0x 3.9% Mean 15.9% 23.2% 91.1% 6.4% 23.5% 14.6x 12.0x 6.8% Consumer & Food Service Sysco Corporation $24,219 $36.66 (3.5%) (0.2%) 88.4% 4.9% 17.5% 10.1x 13.6x 5.2% United Natural Foods, Inc. 3, (10.4%) 3.0% 79.9% 3.7% 16.0% 13.9x 11.4x 15.8% SpartanNash Company 1, % 51.6% 99.4% 2.8% 14.6% 7.9x 7.3x 0.0% Core-Mark Holding Company, Inc. 1, (14.1%) 38.2% 77.3% 1.3% 7.0% 12.3x 10.4x 8.6% Median (6.9%) 20.6% 84.2% 3.3% 15.3% 11.2x 10.9x 6.9% Mean (6.6%) 23.1% 86.2% 3.2% 13.8% 11.0x 10.7x 7.4% Industrial, MRO & Safety W.W. Grainger, Inc. $16,914 $ % (1.1%) 92.5% 15.9% 43.2% 10.6x 10.5x 6.1% Fastenal Company 12, % (11.6%) 84.2% 23.3% 50.7% 14.0x 13.3x 9.6% Airgas, Inc. 9, (4.1%) (3.6%) 85.4% 18.3% 55.6% 10.2x 10.0x 3.8% MSC Industrial Direct Co. Inc. 4, % (19.0%) 75.1% 15.9% 45.6% 10.8x 10.7x 9.9% United Stationers Inc. 2, (3.2%) 7.8% 89.7% 4.8% 15.3% 8.4x 8.3x 2.4% Applied Industrial Technologies, Inc. 2, (4.2%) (8.7%) 80.6% 8.1% 27.9% 9.1x 8.6x 5.2% DXP Enterprises, Inc. 1, (4.4%) (59.5%) 40.1% 9.3% 28.8% 7.8x 8.6x 19.4% Median (3.2%) (8.7%) 84.2% 15.9% 43.2% 10.2x 10.0x 6.1% Mean (0.1%) (13.7%) 78.2% 13.7% 38.2% 10.1x 10.0x 8.0% Healthcare McKesson Corporation $59,455 $ % 37.3% 98.2% 2.3% 6.5% 15.2x 11.8x 13.2% Cardinal Health, Inc. 28, (4.1%) 35.1% 93.8% 2.6% 5.6% 11.4x 10.2x (3.1%) Henry Schein, Inc. 12, (1.4%) 21.8% 95.8% 8.5% 28.1% 14.3x 13.8x 6.2% Patterson Companies, Inc. 4, (5.1%) 13.6% 89.3% 9.5% 28.2% 12.2x 11.2x 7.5% Owens & Minor Inc. 2, (0.6%) 3.4% 92.2% 2.6% 12.4% 10.3x 9.0x 3.2% Median (1.4%) 21.8% 93.8% 2.6% 12.4% 12.2x 11.2x 6.2% Mean (1.6%) 22.2% 93.9% 5.1% 16.2% 12.7x 11.2x 5.4% PAGE 2

4 PUBLIC COMPARABLES & TRADING VALUATIONS Key Trading Stats As of May 15, 2015 ($ in millions, except per share amounts) SPECIALTY DISTRIBUTION PUBLIC COMPARABLES Stock Performance Revenue Current 1-Month 1-Year % of LTM Margins TEV/EBITDA Growth TEV Price Change Change LTM High EBITDA Gross 2015 LTM 2015E 3-Yr. CAGR Technology Arrow Electronics, Inc. $8,002 $ % 12.7% 94.9% 4.6% 13.1% 7.6x 7.4x 2.5% Avnet, Inc. 7, % 6.8% 94.7% 3.8% 11.5% 6.9x 6.7x 2.3% Ingram Micro Inc. 4, % 1.8% 87.2% 1.6% 5.7% 6.5x 5.8x 8.9% SYNNEX Corp. 3, % 27.6% 98.6% 3.3% 8.4% 8.0x 7.7x 10.6% Tech Data Corp. 1, % (4.7%) 83.6% 1.2% 5.0% 6.0x 6.0x 2.6% ScanSource, Inc. 1, (2.2%) 7.8% 93.1% 3.6% 9.9% 9.3x 8.9x 1.4% Median 2.4% 7.3% 93.9% 3.5% 9.2% 7.3x 7.0x 2.5% Mean 3.6% 8.7% 92.0% 3.0% 9.0% 7.4x 7.1x 4.7% Electrical & Communications Rexel SA $8,293 $18.35 (5.5%) (28.3%) 88.2% 5.1% 24.2% 11.0x 7.7x 0.9% WESCO International Inc. 4, % (17.1%) 76.5% 6.6% 20.3% 8.4x 8.4x 7.8% Anixter International Inc. 3, (8.8%) (26.8%) 66.8% 6.0% 22.7% 8.6x 10.4x 1.9% Houston Wire & Cable Company (3.6%) (21.5%) 65.9% 6.9% 22.1% 8.2x 9.9x (1.7%) Median (4.5%) (24.1%) 71.6% 6.3% 22.4% 8.5x 9.1x 1.4% Mean (3.9%) (23.4%) 74.3% 6.1% 22.3% 9.1x 9.1x 2.2% Stock Prices As of May 15, 2015 TRAILING TWELVE MONTHS STOCK PRICE PERFORMANCE 40% Healthcare 30% Automotive & Heavy Duty Aftermarket 20% S&P % Technology 0% (10%) Consumer & Food Service Building and Construction Industrial, MRO, & Safety (20%) Electrical & Communications (30%) PAGE 3

5 M&A AND PUBLIC MARKET TRENDS Distribution Trends LTM EBITDA as of May 15, 2015 TEV / EBITDA MULTIPLES FOR PUBLIC COMPARABLES 20x TEV / EBITDA 15x 10x 5x 14x 15x 14x 12x 12x 12x 12x 12x 11x 10x 10x 10x 10x 9x 9x 9x 9x 7x 7x 7x 7x 0x Jan-15 Feb-15 Mar-15 Apr-15 Automotive & Heavy Duty Aftermarket Building & Construction Products Consumer & Food Service Industrial, MRO & Safety Healthcare Technology Electrical & Communications NET DEBT / EBITDA EBITDA MARGINS 4x 20% Net Debt / EBITDA 3x 2x 1x 1.9x 1.5x 1.9x 1.5x 0.9x 1.3x 2.8x EBITDA Margin 15% 10% 5% 14.6% 6.4% 2.9% 13.7% 5.0% 3.0% 6.2% 0x 0% M&A Trends RECENT M&A AND PRIVATE EQUITY TRENDS A BREAKDOWN OF PE ACTIVITY IN Q PE COMMITTING GREATER RESOURCES TO DRIVE PORTFOLIO GROWTH In Q1 2015, 60 new funds were raised totaling $56.5bn in capital raised, down from Q levels of 122 new funds raised totaling $64.4bn in capital raised 76.7% of funds raised in Q hit their fundraising targets The median platform deal size in Q was $186.1mm, the highest in nearly four years In Q1 2015, private equity firms completed 389 exits, down from Q levels of 417 exits; however, the median exist size increased over $10mm from Q1 2014, from $258mm to $270mm PE firms are continuing to invest more resources to "professionalize" their portfolio companies and prepare them for growth and an eventual exit PE firms are undertaking activities indicative of this trend, including an increased use of and focus on operating partners, entrepreneurs-in-residence and highly specialized third party service providers Add-on investments have been steadily rising as a share of overall buyout activity over the last decade, jumping from 36% of all buyouts in 2004 to more than 50% in recent years PAGE 4

6 M&A TRANSACTIONS Announced M&A Transactions Private Equity Announced Target Description Acquirer Involvement 05/12/15 Valley Air Supply Distributor of air supplies Airgas, Inc. 5/11/2015 The M. F. Cachat Company Distributor of specialty chemicals IMCD Group B.V. 5/8/2015 Larmar Rents LLC Distributor of construction equipment Basin Power Solutions 5/7/2015 Big Tree Bikes Distributor of mountain mike equipment Evolucion Innovations, Inc. 5/6/2015 Kramer Ltd. Distributor of road maintenance equipment Finning International Inc. 5/2/2015 Animal Health International, Inc. Distributor of animal health supplies Patterson Companies, Inc. (Seller) 5/1/2015 Python Safety, Inc. Distributor of safety products Capital Safety, Inc. (Buyer) 5/1/2015 Medical Imaging Resources, Inc. Distributor of medical equipment Oxford Instruments plc 4/30/2015 Rexel SA, Operations in Latin America Distributor of electrical equipment Sonepar S.A. 4/30/2015 Grant Supply Company, Inc. Distributor of HVAC equipment F.W. Webb Company 4/30/2015 Zarsky Lumber Company, Inc. Distributor of lumber products Kodiak Building Partners 4/29/2015 Tallega Software LLC Distributor of software products InStream, LLC 4/28/2015 RMS Cranes, LLC Distributor of mining equipment North American Lifting Holdings Inc. 4/28/2015 Metro Medical Supply, Inc. Distributor of medical supplies Cardinal Health, Inc. 4/27/2015 Hill Country Electric Supply, L.P. Distributor of electrical equipment WESCO Distribution, Inc. 4/27/2015 B&G Crane Service, LLC Distributor of rigging equipment 4/27/2015 Northeast Battery & Alternator, Inc. Distributor of battery products NCSG Crane & Heavy Haul Holdings Inc. Colville Capital LLC; Brookside Mezzanine Partners 4/24/2015 Midwest Valve Parts Supply, Co., Inc. Distributor of pipes and valves Industrial Service Solutions 4/22/2015 Rock N Roll Imports, Inc. Distributor of alcohol products CME Realty, Inc. 4/20/2015 National Detroit, Inc. Distributor of abrasive products Dynabrade Inc. (Seller) (Buyer) 4/17/2015 Unipex Solutions Canada Inc. Distributor of chemicals KODA Distribution Group, Inc. (Buyer) 4/16/2015 Wolfe Beverage Company, Inc. Distributor of alcohol products 4/15/2015 Janssen Packaging and Emballages Maska Inc and Prescott S.M. Inc Distributor of packaging equipment Iowa Beer and Beverage Company 4/13/2015 Coast Pet Distributors, Inc. Distributor of pet supplies. Animal Supply Company, LLC (Buyer) 4/10/2015 Key Chemical, Inc. Distributor of chemicals Univar USA Inc. (Buyer) Bunzl plc 4/2/2015 GPA, Specialty Substrate Solutions Inc. Distributor of printable substrates Fedrigoni S.p.A. PAGE 5

7 ECONOMIC UPDATE A Snapshot of Key Economic Indicators As of May 15, 2015 PMI INDEX 1 ISM NEW ORDERS INDEX A PMI Index figure greater than 50 indicates expansion. INDUSTRY PRODUCTION INDEX An ISM Index figure greater than 50 indicates expansion. U.S. MANUFACTURING CAPACITY UTILIZATION 100% 90% 80% 70% 60% 50% 3. A Production Index figure greater than 50 indicates expansion. MANUFACTURING INVENTORIES & BACKLOG 4,5 DURABLE GOODS NEW ORDERS 6 70 $ $ ($ in billions) $250 $200 $ Apr-10 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Inventories Backlog of Orders $ A Manufacturing Inventory Index figure greater than 50 indicates expansion. 5. A Backlog Index figure greater than 50 indicates expansion. 6. Durable Goods New Orders for March April release on May 26. PAGE 6

8 OUR FIRM Harris Williams & Co. has a broad range of industry expertise, which creates powerful opportunities. Our clients benefit from our deep-sector experience, integrated industry intelligence and collaboration across the firm, and our commitment to learning what makes them unique. For more information, visit our website at Aerospace, Defense & Government Services Building Products & Materials Business Services Consumer Energy & Power Healthcare & Life Sciences Industrials Specialty Distribution Technology, Media & Telecom Transportation & Logistics HARRIS WILLIAMS & CO. OFFICE LOCATIONS Boston Two International Place 24th Floor Boston, Massachusetts Phone: +1 (617) Fax: +1 (617) Cleveland 1900 East 9th Street 20th Floor Cleveland, Ohio Phone: +1 (216) Fax: +1 (216) Minneapolis 222 South 9th Street Suite 3350 Minneapolis, Minnesota Phone: +1 (612) Fax: +1 (612) UNITED STATES Philadelphia 1600 Market Street 21st Floor Philadelphia, Pennsylvania Phone: +1 (267) Fax: +1 (267) Richmond (U.S. Headquarters) 1001 Haxall Point 9th Floor Richmond, Virginia Phone: +1 (804) Fax: +1 (804) San Francisco 575 Market Street 31st Floor San Francisco, California 94105, USA Phone: +1 (415) Fax: +1 (415) EUROPE Frankfurt Bockenheimer Landstrasse Frankfurt Germany Phone: Fax: London 63 Brook Street London W1K 4HS, England Phone: +44 (0) Fax: +44 (0) Beijing Hong Kong Mumbai NETWORK OFFICES New Delhi Shanghai PAGE 7

9 HARRIS WILLIAMS & CO. SPECIALTY DISTRIBUTION SOURCES Federal Reserve Industrial Distribution The Electrical Distributor Magazine The Wall Street Journal PitchBook PNC Economic Outlook S&P Capital IQ Thomson Financial SDC Database United States Census Bureau National Association of Wholesaler distributors Harvard Business Review DISCLOSURES Harris Williams & Co. ( is a preeminent middle market investment bank focused on the advisory needs of clients worldwide. The firm has deep industry knowledge, global transaction expertise, and an unwavering commitment to excellence. Harris Williams & Co. provides sell-side and acquisition advisory, restructuring advisory, board advisory, private placements, and capital markets advisory services. Investment banking services are provided by Harris Williams LLC, a registered broker-dealer and member of FINRA and SIPC, and Harris Williams & Co. Ltd, which is authorized and regulated by the Financial Conduct Authority. Harris Williams & Co. is a trade name under which Harris Williams LLC and Harris Williams & Co. Ltd conduct business. THIS REPORT MAY CONTAIN REFERENCES TO REGISTERED TRADEMARKS, SERVICE MARKS AND COPYRIGHTS OWNED BY THIRD-PARTY INFORMATION PROVIDERS. NONE OF THE THIRD-PARTY INFORMATION PROVIDERS IS ENDORSING THE OFFERING OF, AND SHALL NOT IN ANY WAY BE DEEMED AN ISSUER OR UNDERWRITER OF, THE SECURITIES, FINANCIAL INSTRUMENTS OR OTHER INVESTMENTS DISCUSSED IN THIS REPORT, AND SHALL NOT HAVE ANY LIABILITY OR RESPONSIBILITY FOR ANY STATEMENTS MADE IN THE REPORT OR FOR ANY FINANCIAL STATEMENTS, FINANCIAL PROJECTIONS OR OTHER FINANCIAL INFORMATION CONTAINED OR ATTACHED AS AN EXHIBIT TO THE REPORT. FOR MORE INFORMATION ABOUT THE MATERIALS PROVIDED BY SUCH THIRD PARTIES, PLEASE CONTACT US AT THE ABOVE ADDRESSES OR NUMBERS. The information and views contained in this report were prepared by Harris Williams & Co. ( Harris Williams ). It is not a research report, as such term is defined by applicable law and regulations, and is provided for informational purposes only. It is not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any financial instruments or to participate in any particular trading strategy. The information contained herein is believed by Harris Williams to be reliable, but Harris Williams makes no representation as to the accuracy or completeness of such information. Harris Williams and/or its affiliates may be market makers or specialists in, act as advisers or lenders to, have positions in and effect transactions in securities of companies mentioned herein and also may provide, may have provided, or may seek to provide investment banking services for those companies. In addition, Harris Williams and/or its affiliates or their respective officers, directors and employees may hold long or short positions in the securities, options thereon or other related financial products of companies discussed herein. Opinions, estimates and projections in this report constitute Harris Williams judgment and are subject to change without notice. The financial instruments discussed in this report may not be suitable for all investors, and investors must make their own investment decisions using their own independent advisors as they believe necessary and based upon their specific financial situations and investment objectives. Also, past performance is not necessarily indicative of future results. No part of this material may be copied or duplicated in any form or by any means, or redistributed, without Harris Williams prior written consent. Copyright 2015 Harris Williams & Co., all rights reserved. PAGE 8