Global Fastener News

1998 to 2002 FIN – History of Pentacon Inc.

September 10
00:00 2012

 

2002 FIN Anixter Acquires Pentacon
September 20, 2002 FIN – Pentacon Inc. emerged from Chapter 11 bankruptcy following the announcement that Anixter International Inc. completed its purchase of the company.
Pentacon will now operate as Anixter Pentacon Inc.

Anixter reportedly paid $108.2 million for the company and assumed trade liabilities totaling $16.5 million.
As part of the deal, Chicago-based Anixter agreed to retain existing Pentacon employees.
Anixter CEO Bob Grubbs anticipated Pentacon would contribute immediately to Anixter’s bottom line in the fourth quarter, with estimated Q4 sales of $48 million to $52 million.

Anixter is a global distributor of wiring systems and networking products. E-mail: info@anixter.com Web: anixter.com

Chatsworth, CA-based Pentacon distributes fasteners and small assembly components through 30 facilities around the world. E-mail: information@pentacon-inc.com Web: pentacon.com ©2002/2009 Fastener Industry News

January 20, 1998 FIN – Five distributors with annual sales exceeding $120 million in 1996 are planning a stock offering and an “aggressive acquisition program” following the offering.

Upon completion of the public offering of 3,773,585 shares of stock Pentacon Inc. will acquire Alatec Products Inc., AXS Solutions Inc., Capitol Bolt & Supply Inc., Maumee Industries Inc. and Sales Systems, Limited.

Pentacon will then have 24 facilities in 14 states and will distribute fasteners and other small parts and provide inventory procurement and management services to OEMs.

Pentacon named Mark Baldwin as chairman and CEO. Baldwin was president of Industrial valves & Controls Group of Keystone International Inc.

AXS CEO Jack Fatica will be president and COO; Brian Fontana, who has been executive vice president and CFO of Prime Service Inc, will be senior vice president and CFO; and Bruce Taten will be senior vice president and general counsel. Taten was counsel for Keystone International.

Pentacon was formed last March by McFarland, Grossman & Co., a Houston-based investment banking firm.
The stock offering is being managed by Donaldson, Lufkin & Jenrette, BT Alex Brown and Schroder & Co Inc.
Pentacon filed a registration statement with the Securities and Exchange Commission and the company is applying for a listing on the New York Stock Exchange under the symbol “JIT.”

The public stock offering won’t be until at least mid-February after SEC approvals and the executive team goes on a “road show” touting their new company to fund managers and institutional stock buyers.
Initial stock prices for the new offerings are generally determined by these road shows when the company gets a feel from investors. The investment bankers will try to push the initial offering price low, and the company will want the price high as possible.

The registration statement describes the company as “a leading distributor of fasteners and other small parts and provider of related inventory procurement and management services to original equipment manufacturers on a worldwide basis.”

“The Company believes that its broad selection of fasteners and small parts, high quality services, professional management team, and strong competitive position as a publicly-owned fastener distributor focused on the OEM market, will allow it to be the leading consolidator.”
“The Company believes that the fastener distribution industry is highly fragmented and in the early stages of consolidation.”

There are a “significant number of acquisition candidates available” and Pentacon “will be regarded as an attractive acquirer due to its position as an industry leader, its ability to offer cash and/or publicly traded stock for acquisitions, and the potential for improved growth and profitability.”

Pentacon would then be competing directly with publicly held Questron and several private companies, including Germany-based Würth Group and Distribution Dynamics of California, in acquiring North American distributorships.

Pentacon, citing estimates by the Freedonia Group that sales by fastener manufacturers in 1996 were $8 billion in the U.S. and $25 billion globally, plans to “lead consolidation of the industry” which is estimated to include 1,900 distributors in the U.S.
“The cost for an OEM to internally manage its inventory of fasteners and small parts is relatively high due to the large number of fasteners and other small parts in the inventory, the risk of interruptions for just-in-time manufacturing operations, and the need to perform quality assurance testing.
Pentacon “believes that OEMs are increasingly outsourcing their fastener and other small parts inventory procurement and management needs to distributors in order to focus on their core manufacturing businesses and to reduce costs. To further reduce costs, many manufacturers are seeking to consolidate the number of distributors with extensive products lines who can also provide inventory-related services.

Pentacon will provide inventory procurement and management systems, kit packaging, quality assurance, services such as plating and coating, sub-assembly, engineering and EDI.

Industry Figures

Pentacon’s SEC filing estimates none of the 1,900 fastener distributors in the U.S. have more than 3% of the market. Of privately owned distributors, three companies exceed $100 million in sales; 10 have sales in the $50 million; 61 from $10 million to $25 million; 112 from $5 million to $10 million; and 270 from $2 million and $5 million.

A total of 1,523 distributors have sales under $2 million.

Company Descriptions

Pentacon’s SEC filing states sales for the five founding companies have increased at an annual rate of 14.8% for the past four years, compared with total U.S. fastener sales rising 6.5% in the same period.
The companies distribute more than 1000,000 different fasteners and small parts. They sell to 2,600 customers in 25 countries.
The 10 largest customers are Cummins Engine Company, General Electric Corporation, Harley Davidson, Hughes Aircraft, Trane Company, Lockheed Martin and Boeing. Cummins accounts for 17% of sales and no other customer represents more than 9%.

Approximately 10% of net sales in the first nine months of 1997 were to customers or customer locations outside the U.S. and Pentacon “anticipates aggressively pursuing” international opportunities.
Industrial machinery accounted for 35.3% of the five founding companies, sales in the first nine months of 1997; aerospace 22.1%; electrical machinery and electronics 14.6%; motor vehicles 5.6%; fabricated metal products 2.1% and 20.3% were in other industries.
The five companies sold products manufactured by 2,000 suppliers from 16 countries. The companies purchased no more than 5% of products from any single source.

Pentacon “anticipates reviewing its supplier base” and believes it will be able to purchase in “volumes to achieve improved service and pricing.”

The five companies total 516 employees. There is one collective bargaining agreement covering nine employees.

Alatec Products Inc., headquartered in Chatsworth, CA, was founded in 1972 by Fred List and operates either distribution and sales offices throughout the U.S.
Alatec principally serves commercial aviation, defense electronics and other high-tech industries.
Net sales for the nine months ended Sept. 30, 1997, were $42.3 million.

Alatec president Donald List has been with the company for 20 years and will sign a five-year employment agreement to continue as president of Alatec and become a director of Pentacon. Alatec has 211 employees.

AXS Solutions Inc. Is headquartered in Erie, PA, and was formed upon the 1996 merger of Hoyt Fastener Corp. of Illinois and Champion Bolt Corp. of Pennsylvania.
Hoyt was founded in 1964 and Champion 1968. AXS operates two distribution facilities and principal customers are power generation, locomotive, gas and steam turbine and small motor industries.
Sales for the first nine months of 1997 totaled $22 million and there are 70 employees.
Jack Fatica is CEO, Jeffrey Fatica is president of the Champion division and Robert Hoyt is president of the Hoyt division.
Each will sign five-year employment agreements for their current positions. Jack Fatica will be Pentacon’s president, COO and a director.

Capitol Bolt & Supply Inc. was founded in 1966 by Early McClure and Mary McClure.
Headquarted in Austin, TX, Capitol operates eight distribution facilities in the Midwest and South and principally serves metals, refrigeration, electronics and construction industries.
Sales for the first nine months of 1997 were $9 million and there are 50 employees. Mary McClure will sign a five-year employment agreement to remain president of Capitol and become a Pentacon director.

Maumee Industries Inc. of Fort Wayne, IN, was founded in 1979 by Michael Black and operates four distribution facilities in the Midwest.
Maumee principally serves the automotive, recreational vehicle, heavy-duty truck and toy industries. Maumee had first nine months of 1997 sales of $27.5 million and has 141 employees.
Michael Black is president and Michael Peters is CEO. Black will provide advisory services to Pentacon, and Peters will sign a five-year agreement as CEO and Pentacon director.

Sales Systems Limited of Allentown, PA, was founded in 1979 and was owned principally by Benjamin Spence Jr. and Richard Knorr.
SSL operates a distribution facility in Pennsylvania and one in South Carolina. SSL principally sells to motor vehicle, furniture and equipment, general service machinery and transport equipment industries. First nine month 1997 sales totaled $12 million and SSL employs 44 people.
Spence and Knorr will sign five-year agreements to remain in their positions and be directors.

Stockholders of the founding companies will receive approximately the following cash and share of common stock: Alatec, $12.7 million and 2.97 million shares; AXS, $7.8 million and 1.8 million shares; Maumee, $5.1 million and 1.2 million shares; SSL, $2.3 million and 548,554 shares; Capitol, $772,000 and 180,934 shares.
Pentacon will be located at 9821 Katy Freeway #500, Houston, TX 77024.©1998/2009 Fastener Industry News

FIN 1998 – Pentacon Opens for Business
May, 4 1998 FIN – Mary McClure received a phone call nearly a year ago inquiring if she would be interested in merging Austin, TX-based Capitol Bolt & Supply Inc. with other fastener distributors to form a publicly held corporation, Pentacon Inc.

For several years McClure has been “exploring what we’re going to do with the company” which she and her husband, Mickey McClure, founded in 1966.
She continued in the business after his death in 1981 and went on to become the first (and still only) woman president of the National Fastener Distributors Association.
Both of their children, Rory McClure and Michelyn McClure, work with her at Capitol Bolt and were part of the Pentacon decision.

“The kids and I talked about it and there was enough interest to talk more.” McClure recalled. “They know I’m getting older.”

But she admits to initial skepticism about Pentacon. “How are these companies going to fit?” she remembers questioning. “How can investment bankers evaluate which fastener distributors would work well together?”

One of the other five distributors forming Pentacon, Jack Fatica, had already ventured into the consolidation business. He formed Erie, PA-based AXS solutions Inc. with the merger of Champion Bolt Corp. and Hoyt Fastener Corp. of Chicago, in 1996.
“I tried on my own,” Fatica said of consolidations. But he described raising capital and handling acquisitions as a “full time job that is not what I’m good at. I’m an operations man.”
With Pentacon, Fatica got that operational role. Upon the initial stock offering, Fatica became president and chief operating officer.

Recognizing Consolidation

Fatica told FIN the first issue for selling to Pentacon is “recognizing the industry is going through consolidation and answering the question, ‘How do you want your company to be involved?'”

The investment bankers – McFarland, Grossman & Co. of Houston – had already done their homework on the fastener industry and found it ripe for consolidation when they started contacting distributors last year.

Pentacon chairman and CEO Mark Baldwin said distributors looking to sell “germinated the idea” of a publicly held fastener distribution corporation.
Investment bankers wrote letters to 100 distributors, talked to 30 and selected five.
In addition to Capitol and AXS, Pentacon began with Alatec Products Inc. of Chatsworth, CA, Maumee Industries Inc. of Fort Wayne, IN, and sales systems Ltd. of Allentown, PA (see FIN, Jan. 20, 1998).

“Customers are asking for this,” Baldwin told FIN. “Detroit got religion about cost control and it is ripping through the [automotive] industry. It is about bringing costs down.
Baldwin joined Pentacon from Keystone International Inc., a publicly held valve and controls manufacturer with multiple plants and global competition, where he observed companies reducing suppliers from 30 to three and adopting point-of-use replenishment programs.

Beyond the consolidation trend, Fatica talks about “synergy” and “bringing together and leveraging” among his reasons for consolidating.
Fatica also liked taking stock instead of selling AXS for cash. “I wanted to stay involved. I wanted to have ownership.”

When the presidents of the five companies entered a New York hotel conference room last July they did not know who the other four would be. They had expressed serious interest but none had signed a letter of intent.

McClure told FIN she knew two of the other four distributors in the room.
“What I knew I was comfortable with.” She recalled. “I wanted to know more.”
She wanted to know that the other distributors had similar styles of taking care of customers and staff.

Fatica said he wanted “people who run their businesses in a similar way.” McClure and Fatica said they liked what they learned about each at the first meeting.
“It was the way the thing felt,” Fatica said. “You could feel it was right.”

Baldwin described the Pentacon distributors as “a partnership with a common vision,” which is “seeing what the customer is asking for.”
That meeting was only the beginning. Because Pentacon would be traded on the stock market, certified audits had to be conducted of all five companies and the reports would be public.

McClure admits her “perception of public corporations was not positive.”
As the securities & Exchange Commission process progressed she discovered the Pentacon companies “have the same views of how we do business.”

McClure said she is especially happy that Capitol Bolt employees greeted the corporate rate change positively.
“There is a fear factor when you get bought out,” McClure noted. So often employees are let go. Instead, her staff participated in stock options when Pentacon went public on March 10, 1998, with six million shares of common stock selling on the New York Stock Exchange.

Coming Next

Pentacon will aim at OEM customers and providing just-in-time and subassembly services. The distributors bring a list of well-known customers to the new corporation: Cummins, General Electric, Harley-Davidson, Highes Aircraft, Trane, Lockheed Martin and Boeing.

Expansion will be aided by the corporate “access to capital, a broader career path for employees and a sharing of best practices,” Baldwin told FIN.
Pentacon also announced early it will seek to grow through acquisitions.
Last year Capitol Bolt opened branches in Illinois and Florida, and McClure sees Pentacon resources will be helpful in the future expansion.
McClure said she looks forward to her executive council role. Though she knows she’s been making business decisions on her own for 17 years, she is happy to have others involved again. “Life’s work should be shared with someone else,” McClure said.
Joining Pentacon doesn’t end her job. “I’m still responsible for what Capitol Bolt is doing,” McClure said. “I have the additional responsibility to contribute to the whole and support the sister companies. It adds another dimension.”

Baldwin noted that the Pentacon companies will proceed under a “decentralized operating philosophy,” integrating some parts of the sales and marketing team, material procuring, information technology, quality control, laboratories and human resources.

The Houston headquarters will be kept to a minimum, Baldwin vowed. “I’m overhead. We’ll keep the head count to a minimum. We have four now and will be at eight or nine by the end of the year.”
What Pentacon is now is “a public vehicle and a great platform for change and growth,” Baldwin said.

Pentacon’s First Report Card

Pentacon Inc. went public on March 10, 1998, with six million shares of common stock selling on the New York Stock Exchange.
During its initial quarter which ended March 31, the Pentacon companies reported a total net income of $2.1 million and revenues of $41.3 million (The figures total the results from the five companies even though the stock offering was late in the quarter).
CEO Mark Baldwin noted that the figures showed the founding companies posted “double-digit internal growth.”

Pentacon opened at 10 on March 10, and the first trade was at 13. On April 30 closed at 13 1/4.

Richard Hagan, president of Pinnacle Capital Corporation, said Pentacon “appears to be riding the market’s current fascination with newly public companies.”
Hagan, a New York-based investment banker, who specializes in handling fastener company transactions, noted that “of the reasonably comparable public companies, the only stock which trades at a higher Price/Earnings ratio is Fastenal.”
“Interestingly, Pentacon [symbol: JIT] trades at nearly an identical P/E multiple as Industrial Distribution Group [IDG}, a ‘general line’ distributor which completed a ‘roll-up’ about six months ago.”

P/E
Fastenal (FAST) 44
Pentacon (JIT) 33
Industrial Distribution Group (IDG) 32
Banner Aerospace 28
Questron (QUST) 19
Park-Ohio (PKOH) 17
Aviall (AVL) 10
©1998/2009 Fastener Industry News

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