Global Fastener News

1998 FIN – Hagan: Do Your Own Little Consolidation

May 30
00:00 2011

October 29, 1998 FIN – Small distributors wondering what the wave of acquisitions will do to them might respond by “doing your own little consolidation,” Richard Hagan of Pinnacle Capital Corporation told the Southeastern Fastener Association.

“You’re in the business,” Hagan pointed out. “You know distribution. You can use your own equity and borrowing power” to acquire smaller companies.

“Ask yourself, ‘Who’d be attractive add-ons to your business?'”

Will the wave of consolidation hurt small distributorships? “The guys at risk are the medium-size distributors,” Hagan suggested. Many small distributors might not even have their customer base threatened by the increasingly larger distribution corporations, he added.

“If your customer is below their radar screen you are probably not at risk yet,” Hagan reassured small distributors.

Hagan is president of Pinnacle Capital, a New York based investment-banking firm, which provides advice and assistance in fastener industry acquisitions worldwide.

Consolidation is being driven by customers wanting expanded procurement and inventory management services from fewer suppliers. In addition, because the fastener industry has been highly fragmented with significant economies of scale plus low interest rates, it is ripe for consolidation.

“Five years ago less than 10% of distributors were investing in value-added inventory management programs. Now two-thirds do. Others are realizing they don’t have the working capital for it, giving them additional reason to consider selling.

Hagan predicted that the current 2,500 distributors in the United States will drop 5% to 10% in the next two years, primarily due to acquisitions by the large or regional companies buying up smaller ones.

As recently as 1994 “there really wasn’t a lot of deal activity,” Hagan noted. “It was mostly distress sales or undervalued public companies. Today it is proactive buyers who have a strategic plan.”

Half of 1998’s major deals thus far involve aerospace-related companies, Hagan pointed out. That is partly because there aren’t a lot of deals recently and competition is heating up, making sellers realize they need more leverage on customers.”

Hagan named Pentacon Inc., Distribution Dynamics Inc., Park-Ohio Inc. and Questron Technologies Inc. as the leading acquisition companies.

Privately held Würth Group of Germany, Curtis Industries, Bossard International of Switzerland, International Holdings Inc. of Houston, Purchased Parts and Lawson Products and two British-based distribution companies- Trifast PLC and Haden MaClellan Holdings Inc.- are all positioning themselves for acquisitions.

• Pentacon: After going public with a rollup of five companies in March, Pentacon still plans to grow through aggressive acquisition. Pentacon started with a $75 million line of credit and “almost half of that is used up,” Hagan observed.

He predicted Pentacon will go after more commercial and industrial distributors, because “they now have enough aerospace.”

• Distribution Dynamics-The Bay Area-based privately held corporation has acquired six companies and can be expected to go after an eastern U.S. acquisition soon.

Hagan predicts Distribution Dynamics will go public “when the situation is right. They almost went this past summer.”

• Questron “is the smallest of the buyers,” Hagan said. Questron has $70 million in annual sales and a $45 million line of credit for acquisitions, but “it won’t be as easy with a shaky market.”

• Park-Ohio has become the “biggest non-aerospace fastener company in the acquisition mix.” Park-Ohio just entered the fastener business in 1995 with the acquisition of RB&W. With the addition of Arden Fasteners and Arcon last year Park-Ohio became a major fastener firm. Watch for Park-Ohio to spin off its logistic business “when the market is right,” Hagan predicted.

When asked which of the acquiring fastener companies has the best chance to come out on top, Hagan replied that Pentacon and Distribution Dynamics are in the best position to take the lead. ©1998/2011 Fastener Industry News

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