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 US FOODS PLANS TO GO PUBLIC AFTER FAILED SYSCO MERGER In its first six weeks, 2016 has largely been devoid of big initial public offerings. But a major food distributor is planning to change that. US Foods disclosed on Tuesday that it intended to go public, less than a year after its planned merger with a rival, Sysco, collapsed because of opposition from government regulators. US Foods, which is owned by the private equity firms Clayton, Dubilier & Rice and Kohlberg Kravis Roberts & Company (K.K.R.), is the biggest company to file for an offering so far this year. An initial public offering of US Foods was presumably not the first choice of its owners, who bought the business from the Dutch supermarket operator Royal Ahold in 2007 for $7.1 billion. In late 2013, Clayton Dubilier and K.K.R. agreed to sell US Foods to Sysco for $8.2 billion. Read more from this article here. ARROW S SUPER INVESTMENT IN MARKETING The Super Bowl 50 ads featured a lot of different companies and products, including Centennial, Colorado-based distributor Arrow Electronics. Arrow used the high-profile game to promote a more serious offering aerospace and defense technologies. During the company s 30-second ad, a machine built by LEGO maker Arthur Sacek constructed and launched a paper plane while John F. Kennedy s and Neil Armstrong s voices talking about the 1960s moon exploration could be heard in the background. The ad closed with Arrow s tagline, Five Years Out, a nod to its focus on building technologies for the future. Though Arrow s first Super Bowl ad appeared only in the Denver market, it speaks to a growing desire among B2B companies to broaden their marketing efforts and invest more heavily in branding. Arrow has advertised during the Final Four and nationally televised football games. Read more from this article here. GRAINGER, OTHERS INVEST IN DOWN TIMES Though many distributors are feeling the effects of fierce economic headwinds, investing in the business now is critical for success when the climate improves later this year, Grainer CEO Jim Ryan told MDM in Invest or Die. Investing in a distribution business, especially during a soft economy, can help a company differentiate it from enterprises focused on short-term results, according to Victor Jury Jr., CEO of Summit Electric Supply, Albuquerque, New Mexico. 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 & 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) Josh Garner Vice President jgarner@harriswilliams.com +1 (804) We try to practice an investment mindset instead of what I think a lot of larger, publicly held companies, in particular, tend to do, Jury says. They view things like payroll or technology from a financial perspective, seeing them as expenses rather than investments. Any business is only as good as the people that it employs and the technology it uses to serve its customers. Graham Gillam Associate ggillam@harriswilliams.com +1 (804) Read more from this article here. PAGE 1

3 PUBLIC COMPARABLES & TRADING VALUATIONS Key Trading Stats As of February 15, 2016 ($ in millions, except per share amounts) SPECIALTY DISTRIBUTION PUBLIC COMPARABLES Stock Performance Revenue LTM Margins Current 1-Month 1-Year % of TEV/EBITDA Growth EBITDA Gross TEV Price Change Change LTM High LTM 2016E 3-Yr. CAGR Automotive & Heavy Duty Aftermarket AutoZone, Inc. 21.9% 52.4% $26,619 $ % 18.0% 90.8% 11.8x 11.2x 5.7% O'Reilly Automotive Inc. 21.6% 52.3% 26, % 23.1% 91.0% 15.1x 13.5x 8.8% Genuine Parts Company 8.3% 29.9% 13, % (9.4%) 89.2% x 5.8% LKQ Corp. 11.8% 39.3% 9, (3.6%) (8.0%) 77.6% 10.9x 9.5x 20.0% Dorman Products, Inc. 20.2% 38.5% 1, (0.5%) (13.0%) 77.4% 9.0x 8.1x 10.6% Uni-Select Inc. 6.6% 29.7% 1, (11.4%) 45.0% 80.6% 11.6x 10.8x (9.0%) Median 16.0% 38.9% 1.5% 5.0% 84.9% 11.2x 10.6x 7.3% Mean 15.1% 40.3% 1.5% 9.3% 84.4% 11.5x 10.6x 7.0% Building & Construction Products CRH plc 8.5% 29.6% $19,152 $22.44 (3.3%) (8.8%) 79.2% 11.0x 6.2x (2.3%) Wolseley plc 7.2% 28.0% 9, % (9.5%) 79.9% 9.8x 9.0x 0.8% Watsco Inc. 8.6% 24.5% 4, % 6.2% 93.3% x 6.2% Beacon Roofing Supply, Inc. 6.8% 23.9% 3, (10.7%) 16.8% 74.5% 15.3x 9.6x 11.9% Builders FirstSource, Inc. 5.0% 24.3% 2, (18.7%) (0.3%) 39.8% 21.6x 6.4x 32.8% Boise Cascade Company 4.9% 13.6% (0.2%) (54.9%) 44.0% 5.0x % Median 7.0% 24.4% (1.7%) (4.5%) 76.9% 11.9x % Mean 6.8% 24.0% (2.5%) (8.4%) 68.5% 12.6x 8.0x 9.8% Consumer & Food Service Sysco Corporation 4.9% 17.7% $28,209 $ % 9.3% 98.3% 11.8x 11.4x 4.0% United Natural Foods, Inc. 3.7% 15.2% 2, (6.9%) (57.3%) 41.2% 7.3x 6.9x 14.0% Core-Mark Holding Company, Inc. 1.4% 7.2% 1, (3.3%) 9.5% 80.7% x 8.0% SpartanNash Company 2.8% 14.5% 1, % (22.6%) 59.3% 5.8x 5.5x 44.0% Median 3.3% 14.9% 0.2% (6.7%) 70.0% 9.5x 9.0x 11.0% Mean 3.2% 13.7% 0.5% (15.3%) 69.9% 9.9x % Industrial, MRO & Safety W.W. Grainger, Inc. 15.3% 42.4% $14,792 $ % (10.1%) 83.5% 9.8x 10.0x 3.7% Fastenal Company 23.6% 50.4% 12, % 1.3% 96.8% 13.8x 13.6x 7.3% MSC Industrial Direct Co. Inc. 15.5% 45.2% 4, % (12.8%) 85.7% 9.9x 10.1x 6.5% Applied Industrial Technologies, Inc. 8.2% 28.1% 1, % (8.0%) 86.0% x 2.5% DXP Enterprises, Inc. 7.8% 28.3% (15.9%) (70.8%) 27.8% 5.4x 7.9x 7.2% Median 15.3% 42.4% 11.4% (10.1%) 85.7% 9.8x 10.0x 6.5% Mean 14.1% 38.9% 5.3% (20.1%) 76.0% 9.5x 10.1x 5.4% Healthcare McKesson Corporation 2.3% 6.0% $41,297 $ (8.5%) (32.8%) 62.0% 9.6x 8.0x 15.3% Cardinal Health, Inc. 2.6% 5.4% 29, (2.9%) (8.4%) 85.8% 10.1x 9.2x 2.4% Henry Schein, Inc. 8.7% 28.3% 14, % 11.0% 98.4% 15.2x 14.2x 5.9% Patterson Companies, Inc. 9.3% 27.0% 5, % (16.1%) 80.0% 11.1x 11.1x 11.4% Owens & Minor Inc. 3.0% 12.4% 2, % 5.7% 96.8% x 3.3% Median 3.0% 12.4% 5.6% (8.4%) 85.8% 10.1x 9.9x 5.9% Mean 5.2% 15.8% 3.1% (8.1%) 84.6% 11.1x 10.5x 7.7% PAGE 2

4 PUBLIC COMPARABLES & TRADING VALUATIONS Key Trading Stats As of February 15, 2016 ($ in millions, except per share amounts) SPECIALTY DISTRIBUTION PUBLIC COMPARABLES Stock Performance Revenue LTM Margins Current 1-Month 1-Year % of TEV/EBITDA Growth EBITDA Gross TEV Price Change Change LTM High LTM 2016E 3-Yr. CAGR Technology Arrow Electronics, Inc. 4.5% 13.0% $7,090 $ % (13.3%) 82.7% x 4.5% Avnet, Inc. 3.8% 11.4% 6, % (13.9%) 82.5% 6.2x 6.1x 2.8% Ingram Micro Inc. 1.7% 5.9% 4, % 3.5% 86.6% 5.8x 5.3x 6.5% SYNNEX Corp. 3.5% 8.9% 3, % 7.1% 88.1% 8.1x 7.3x 9.1% Tech Data Corp. 1.4% 5.0% 2, % 5.9% 81.0% 5.6x 5.6x 1.1% ScanSource, Inc. 3.6% 10.3% 1, % (2.6%) 86.5% 8.3x 7.8x 5.8% Median 3.5% 9.6% 6.6% 0.5% 84.6% 6.4x 6.3x 5.1% Mean 3.1% 9.1% 9.9% (2.2%) 84.6% 6.8x 6.4x 5.0% Electrical & Communications Rexel SA 4.9% 24.0% $5,352 $9.09 (10.8%) (44.9%) 50.0% 7.1x 7.3x (6.1%) WESCO International Inc. 5.8% 19.9% 3, % (39.3%) 55.5% 7.0x 7.8x 4.5% Anixter International Inc. 5.7% 21.7% 2, (19.4%) (48.0%) 49.6% 7.9x 7.3x (0.3%) Houston Wire & Cable Company 5.3% 21.8% % (50.4%) 48.1% 7.5x 12.3x (5.9%) Median 5.5% 21.7% (3.5%) (46.4%) 49.8% 7.3x 7.5x -3.1% Mean 5.4% 21.8% (4.3%) (45.6%) 50.8% 7.4x % Stock Prices As of February 15, 2016 TRAILING TWELVE MONTHS STOCK PRICE PERFORMANCE 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% -40.0% -50.0% Automotive & Heavy Duty Aftermarket Consumer & Food Service Industrial, MRO, & Safety Technology S&P 500 Building and Construction Healthcare Electrical & Communications PAGE 3

5 M&A AND PUBLIC MARKET TRENDS Distribution Trends LTM EBITDA as of February 15, 2016 TEV / EBITDA MULTIPLES FOR PUBLIC COMPARABLES 20x TEV / EBITDA 15x 10x 13x 15x 11x 14x 12x 12x 13x 12x 11x 10x 10x 10x 9x 8x 9x 8x 8x 11x 12x 13x 10x 10x 11x 5x 0x Nov-15 Dec-15 Jan-16 Feb-16 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 1.5x 0.8x 1.6x 1.1x 1.2x 0.8x 3.3x EBITDA Margin 15% 10% 5% 15.1% 6.8% 3.2% 14.1% 5.2% 3.1% 5.4% 0x 0% M&A Trends RECENT M&A AND PRIVATE EQUITY TRENDS 2015 MIDDLE- MARKET PE ACTIVITY & PE OVERHANG 2015 was another banner year for activity with 2,017 closed deals However, there was a decrease in total deal value from $419 billion in 2014 to $370 billion in 2015 The 4 th quarter was the least active quarter in 2015 with 476 deals done at a total value of approximately $82 billion 2015 was a strong year for exits even with the economic uncertainty in the latter half of the year In 2015, 931 PE-backed transactions were completed for an aggregate value of over $98 billion, the second highest totals for both statistics of all time 44% of the current inventory of PE-owned assets was acquired in 2010 or earlier PAGE 4

6 M&A TRANSACTIONS Announced M&A Transactions Private Equity Announced Target Description Acquirer Involvement 2/10/2016 G-J, Inc. Distributor of liquors and wines Southern Wine & Spirits of America 2/9/2016 Jean Talon Auto Parts Distributor of automotive parts Uni-Select Inc. 2/9/2016 Technical Innovation, LLC Distributor of communication solutions Diversified Systems Inc. P (Seller) 2/8/2016 Quickservice Technologies Inc. Distributor of technology solutions Panasonic Canada Inc. 2/4/2016 Bur-Lane Incorporated Distributor of plastic and identification accessories and supplies Rowmark, LLC P (Buyer) 2/3/2016 Stratix Solutions Group LLC Distributor of networking, server, and storage hardware Atlantix Global Systems, LLC P (Buyer) 2/3/2016 Brohl & Appell, Inc. Distributor of automation and electrical networking products and services Rexel SA 2/2/2016 Kingsway Trading, Inc. Distributor of herbal medicines Yunnan Hongxiang Yixintang Pharmaceutical Co. 2/2/2016 Lamrite West, Inc. Distributor of craft products for party, toy, and grocery stores The Michaels Companies, Inc. 2/1/2016 Progressive Produce Corporation Distributor of fresh produce Total Produce plc 1/29/2016 Neighborhood Diabetes, Inc. Distributor of durable medical equipment Liberty Medical Supply, Inc. 1/29/2016 Pipeco Services, Inc. Distributor of oilfield products including pipes, casings, and connections Bourland & Leverich Supply Co. LLC 1/28/2016 Cloudweb, Inc. Distributor of custom handmade Italian road bikes Letterston Investments Ltd. 1/28/2016 Vision Media Management & Fulfillment, LLC Distributor of fulfillment and technology solutions CenterGate Capital P (Buyer) 1/27/2016 Strongco Corporation Distributor of equipment used in mining, construction, and industrial markets Huddersfield Investments Inc P (Buyer) 1/27/2016 Advanced Pneumatics Company, Inc. Distributor of pneumatic and automation components Hartfiel Automation, Inc. 1/21/2016 Data Comm, Inc. Distributor of imaging equipment Marco, Inc. P (Buyer) 1/20/2016 Impact Fitness, LLC Distributor of fitness training equipment The Abs Company 1/20/2016 Water Transfer LLC Distributor of water transfer equipment Fluid Delivery Solutions, LLC P (Buyer) 1/18/2016 International Pharmaceutical Generics Ltd. Distributor of prescription pharmaceutical and OTC formulations Emcure Pharmaceuticals Limited P (Buyer) 1/18/2016 Innovative Restaurant Supply, Inc. Distributor of baking, catering, bar, and other restaurant supplies BHS Foodservice Solutions P (Buyer) 1/18/2016 CNX Distribution Inc. Distributor of specialty chemicals Maroon Group, LLC P (Buyer) 1/15/2016 Comfort Equestrian Ltd. Distributor of fine equestrian products Bieman de Haas B.V. 1/14/2016 Nitrogen Services LLC and Pipeliner's Warehouse, Inc. Distributor of nitrogen, pipeline pigging, and pumps Cross Country Pipeline Supply Co., Inc. 1/14/2016 PumpTek, LLC Distributor of seal-less pumps Ohio Transmission Corporation P (Buyer) 1/14/2016 Florida Contractor Rentals, Inc. Distributor of heavy and compact rental equipment Dealer Spike, LLC 1/12/2016 R.F. Supply, Inc. Distributor of fabricated and flat glass products Trulite Glass & Aluminum Solutions, LLC 1/12/2016 The Chenille Kraft Company Distributor of craft and education products Pacon Corporation P (Buyer) 1/11/2016 Golden Eagle Distributors, Inc. Distributor of beer Hensley & Company P P (Buyer) (Buyer) 1/11/2016 Glazer's, Inc. Assets Distributor of malt beverages Southern Wine & Spirits of America, Inc. PAGE 5

7 ($ in billions) SPECIALTY DISTRIBUTION ECONOMIC UPDATE A Snapshot of Key Economic Indicators As of February 15, 2016 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 65 $ $300 $250 $200 $ Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-15 Inventories Backlog of Orders 4. A Manufacturing Inventory Index figure greater than 50 indicates expansion. 5. A Backlog Index figure greater than 50 indicates expansion. $ Durable Goods New Orders for December January release on February 25. 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 & Infrastructure 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) Cleveland 1900 East 9th Street 20th Floor Cleveland, Ohio Phone: +1 (216) Minneapolis 222 South 9th Street Suite 3350 Minneapolis, Minnesota Phone: +1 (612) UNITED STATES Richmond (Headquarters) 1001 Haxall Point 9th Floor Richmond, Virginia Phone: +1 (804) San Francisco 575 Market Street 31st Floor San Francisco, California Phone: +1 (415) EUROPE Frankfurt Bockenheimer Landstrasse Frankfurt Germany Phone: London 63 Brook Street London W1K 4HS, England Phone: +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 Harvard Business Review PNC Economic Outlook S&P Capital IQ Thomson Financial SDC Database United States Census Bureau Modern Distribution Management New York Times Dealbook 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 2016 Harris Williams & Co., all rights reserved. PAGE 8