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 a private limited company incorporated under English law with its registered office at 5th Floor, 6 St. Andrew Street, London EC4A 3AE, UK, registered with the Registrar of Companies for England and Wales (registration number ). Harris Williams & Co. Ltd 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 HOW DATA CAN CREATE A PREFERRED PATH TO MARKET 1 Traditionally, distributors have relied on their branch networks to provide manufacturers with effective paths to market, thus proving their value. But distributors looking to position themselves as the preferred route to market for their suppliers need to recognize that being a preferred route means more than saturating the market with branches, inventory and sales reps, according to Guy Blissett and Sanjay Agarwal. It now means capturing a wider array of data and information and then sharing the insights from analyzing that data with their suppliers. In the last Distribution Survey, a special question on sharing point-of-sale data was included. Nearly half of the respondents (49 percent) said they did. While most did it solely because it was a requirement of continuing to do business with those suppliers, others viewed it as a way to strengthen relationships with good partners. Engagement is often viewed as a customer-facing issue, but if distributors increase their focus on how they engage with their manufacturers, everyone in the supply chain could experience a boost in sales and a stronger relationship. Read more from this article here. LEVERAGE SOCIAL MEDIA TO ATTRACT DISTRIBUTION S NEXT GENERATION 2 Visibility on social media is critical for any distributor that wants to recruit millennials, according to Mary Jawgiel, program director of Industrial Careers Pathway, which helps to connect young people with careers in industrial distribution. Millennials will comprise 75 percent of the U.S. work force by 2025, and they tend to have different ideals when it comes to career choices. You can tell your story, show how it s a fun place to be, Jawgiel says. And if you re involved in a charitable organization, put that up there because that s what the younger generation wants. They want to work for a company that they see is involved in the community through giving back. Use your presence to show who you are and to develop a personality. Read more from this article here. MANUFACTURERS LOOK FOR DISTRIBUTORS WITH STRONG E-COMMERCE 3 More manufacturers are evaluating the robustness of a distributor's e-commerce channel before working with them because they "understand the path to sales growth includes offering products in multiple channels, with e-commerce at the forefront," according to Dean Mueller and Jonathan Bein of Real Results Marketing in E-Commerce Inches Toward Maturity, which summarizes the sixth annual MDM distribution e- commerce survey. "Manufacturers don t have time to nurture distributors without solid e-commerce options and will more aggressively secure and support those that offer a strong e-commerce channel," Mueller and Bein say. Manufacturers are looking for distributors that will help develop markets and drive traffic to online channels. They want partners that will help sell product benefits through the online channel, such as adding short videos about the products to their websites. 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) Anthony Basmajian Director abasmajian@harriswilliams.com +1 (804) Graham Gillam Vice President ggillam@harriswilliams.com +1 (804) Read more from this article here. PAGE 1

3 PUBLIC COMPARABLES & TRADING VALUATIONS Key Trading Stats As of May 25, 2017 ($ in millions, except per share amounts) SPECIALTY DISTRIBUTION PUBLIC COMPARABLES 4 Stock Performance Revenue LTM Margins Current 1-Month 1-Year % of TEV/EBITDA Growth EBITDA Gross TEV Price Change Change LTM High LTM 2017E 3-Yr. CAGR Automotive & Heavy Duty Aftermarket O'Reilly Automotive, Inc. 22.0% 50.0% $25,786 $ % (1.3%) 87.1% 0.0x 12.5x 8.4% AutoZone, Inc. 22.2% 52.8% 24, (2.4%) (12.6%) 82.0% 0.0x 10.2x 4.6% Genuine Parts Company 7.9% 29.0% 14, % (5.4%) 85.8% 0.0x 10.7x 2.3% LKQ Corporation 11.8% 37.1% 12, % (4.1%) 85.2% 0.0x 11.2x 17.9% Dorman Products, Inc. 22.2% 39.7% 2, % 55.0% 93.8% 0.0x 13.3x 8.0% Uni-Select Inc. 8.8% 11.1% 1, (13.3%) (9.9%) 83.0% 0.0x 10.2x (11.6%) Building & Construction Products Median 16.9% 38.4% 1.7% (4.7%) 85.5% 0.0x 10.9x 6.3% Mean 15.8% 36.6% 1.1% 3.6% 86.2% 0.0x 11.3x 4.9% Wolseley plc 7.4% 28.0% 17, % 16.1% 97.4% 0.0x 12.7x 1.9% HD Supply Holdings, Inc. 12.1% 32.8% 11, % 22.1% 89.4% 13.1x 11.9x (4.6%) Watsco, Inc. 8.6% 24.1% 5, % 5.4% 87.2% 13.7x 12.9x 3.8% Beacon Roofing Supply, Inc. 8.9% 22.9% 3, % 16.1% 94.5% 10.7x 11.2x 23.2% Builders FirstSource, Inc. 5.5% 24.6% 3, (3.0%) 27.5% 86.8% 10.1x 8.0x 62.5% Boise Cascade Co. 4.1% 11.3% 1, (1.7%) 28.6% 84.7% 9.2x 7.2x 6.7% Consumer & Food Service Median 8.0% 24.4% 1.2% 19.1% 88.3% 10.4x 11.6x 5.3% Mean 7.8% 24.0% 0.8% 19.3% 90.0% 9.5x 10.7x 15.6% Sysco Corporation 5.5% 17.8% $37,362 $ % 8.3% 95.2% 12.5x 12.7x 6.0% Bunzl plc 7.4% 13.3% 12, % 6.9% 93.0% 16.2x 15.4x 1.7% US Foods Holding Corp. 3.8% 17.7% 10, % NA 98.6% 11.9x 10.0x 1.1% Performance Food Group Company 2.0% 12.6% 4, % 2.0% 94.2% 12.6x 11.0x 85.9% United Natural Foods, Inc. 3.5% 15.3% 2, (3.6%) 18.5% 76.9% 8.3x 8.2x 10.1% Core-Mark Holding Company, Inc. 0.9% 5.2% 1, % (16.1%) 70.4% 14.1x 11.0x 14.8% SpartanNash Company 2.9% 14.4% 1, % 31.5% 91.0% 7.8x 7.1x 43.8% Essendant Inc. 2.7% 14.1% 1, % (41.2%) 52.4% 8.1x 7.5x 26.7% Industrial, MRO & Safety Median 3.2% 14.2% 6.3% 6.9% 92.0% 12.2x 10.5x 12.5% Mean 3.6% 13.8% 8.7% 1.4% 84.0% 11.4x 10.4x 23.8% Air Liquide SA 25.4% 35.8% $60,906 $ % 15.8% 96.9% 11.9x 10.5x (0.3%) Fastenal Company 22.8% 49.5% 12, (3.7%) (3.6%) 83.1% 14.1x 13.4x 5.8% W.W. Grainger, Inc. 14.0% 39.4% 12, (18.8%) (20.5%) 68.5% 9.0x 9.4x 2.1% MSC Industrial Direct Co., Inc. Class A 15.7% 44.9% 5, (1.8%) 18.9% 82.9% 12.3x 12.4x 2.6% Applied Industrial Technologies, Inc. 8.3% 27.4% 2, % 41.7% 88.9% 12.6x 13.0x 1.4% DXP Enterprises, Inc. 6.2% 27.5% % 176.1% 96.6% 16.2x 14.7x (10.0%) Healthcare Median 14.9% 37.6% 1.2% 17.3% 86.0% 12.5x 12.7x 1.8% Mean 15.4% 37.4% 0.0% 38.0% 86.2% 12.7x 12.2x 0.3% McKesson Corporation 2.4% 5.3% $40,188 $ % (13.1%) 72.3% 8.5x 8.5x 12.6% Cardinal Health, Inc. 2.4% 4.8% 27, (11.3%) (5.2%) 84.5% 8.7x 8.3x 11.1% Henry Schein, Inc. 8.5% 27.8% 16, % 2.4% 96.2% 16.0x 15.4x 6.7% Patterson Companies, Inc. 8.7% 24.7% 5, (1.1%) (3.4%) 85.5% 10.6x 11.9x 11.6% Owens & Minor, Inc. 2.7% 11.5% 2, (4.3%) (11.6%) 83.8% 9.1x 9.5x 2.0% Median 2.7% 11.5% (1.1%) (5.2%) 84.5% 9.1x 9.5x 11.1% Mean 4.9% 14.8% (2.2%) (6.2%) 84.5% 10.6x 10.7x 8.8% PAGE 2

4 PUBLIC COMPARABLES & TRADING VALUATIONS Key Trading Stats As of May 25, 2017 ($ in millions, except per share amounts) SPECIALTY DISTRIBUTION PUBLIC COMPARABLES 4 Stock Performance Revenue LTM Margins Current 1-Month 1-Year % of TEV/EBITDA Growth EBITDA Gross TEV Price Change Change LTM High LTM 2017E 3-Yr. CAGR Technology Arrow Electronics, Inc. 4.5% 12.5% $9,313 $ % 25.9% 96.9% 8.5x 8.1x 3.7% Avnet, Inc. 3.8% 12.2% 5, (14.2%) (3.9%) 72.6% 5.2x 5.8x (0.9%) SYNNEX Corporation 3.8% 8.4% 5, % 36.3% 84.3% 9.3x 9.8x 8.2% Tech Data Corporation 1.4% 5.0% 2, % 49.4% 95.8% 7.0x 4.1x (1.4%) ScanSource, Inc. 3.1% 10.4% 1, % 1.1% 85.8% 9.3x 8.7x 7.1% Electrical & Communications Median 3.8% 10.4% 3.5% 25.9% 85.8% 8.5x 8.1x 3.7% Mean 3.4% 9.7% 1.6% 21.7% 87.1% 7.9x 7.3x 3.3% Rexel SA 5.0% 23.4% $7,731 $ % 16.7% 90.7% 10.5x 10.2x (5.5%) WESCO International, Inc. 5.4% 18.8% 4, (4.6%) 15.8% 81.9% 11.0x 10.7x (0.8%) Anixter International Inc. 4.8% 19.7% 3, % 41.9% 90.9% 10.7x 9.5x 7.2% Median 5.0% 19.7% 0.2% 16.7% 90.7% 10.7x 10.2x (0.8%) Mean 5.1% 20.6% 0.4% 24.8% 87.8% 10.7x 10.2x 0.3% Stock Prices As of May 25, 2017 TRAILING TWELVE MONTHS STOCK PRICE PERFORMANCE 4 50% 40% 30% 20% 10% 0% -10% -20% -30% Electrical & Communications Building and Construction Technology S&P 500 Industrial, MRO, & Safety Consumer & Food Service Automotive & Heavy Duty Aftermarket Healthcare PAGE 3

5 M&A AND PUBLIC MARKET TRENDS Distribution Trends LTM EBITDA as of May 25, 2017 TEV / EBITDA MULTIPLES FOR PUBLIC COMPARABLES 4 20x 15x 14.5x 14.0x TEV / EBITDA 10x 11.9x 11.9x 11.5x 11.7x 11.0x 11.1x 10.9x 11.0x 12.2x 12.5x 12.5x 10.4x 10.2x 10.4x 10.7x 10.6x 10.3x 9.1x 8.9x 8.9x 8.5x 8.5x 11.4x 11.6x 11.1x 10.7x 5x 0x Automotive & Heavy Duty Aftermarket Building & Construction Products Consumer & Food Service Industrial, MRO & Safety Healthcare Technology Electrical & Communications Feb-17 Mar-17 Apr-17 May-17 NET DEBT / EBITDA 4 EBITDA MARGINS 4 4x 20% 3.3x 15.8% 15.4% Net Debt / EBITDA 3x 2x 1x 1.7x 2.6x 2.0x 1.3x 1.4x 1.0x EBITDA Margin 15% 10% 5% 7.8% 3.8% 4.9% 3.4% 5.1% 0x 0% M&A Trends RECENT M&A AND PRIVATE EQUITY TRENDS 5 U.S. EV / EBITDA MULTIPLES Median EV/EBITDA multiples for M&A in the United States have grown to 10.9x thus far in 2017, compared to 10.1x and 10.8x in 2015 and 2016, respectively Debt / EBITDA levels are currently at the highest level in the past seven years at a median of 6.2x STRATEGIC EXITS FROM PRIVATE EQUITY SEE A DECREASE While the number of secondary buyouts (SBOs) has remained relatively flat in recent quarters, the number of PE-backed exits via sales to a strategic buyer has diminished substantially 185 PE portfolio companies were sold to strategic acquirers in the first quarter, a 32.7% quarter-over-quarter decrease PAGE 4

6 M&A TRANSACTIONS Announced M&A Transactions 4 Private Equity Announced Target Description Acquirer Involvement 5/10/2017 Rubicon Resources LLC Imports and distribute seafood and seafood products High Liner Foods, Inc. 5/10/2017 Padinox, Inc. Manufactures and distributes kitchen supplies Canadian Tire Corp. Ltd. 5/10/2017 Pearlman Group LLC Develops and distributes branded abrasives, tools, and equipment The Stephens Group LLC (Buyer) 5/5/2017 Triad Isotopes, Inc. Manufactures and distributes radioactive pharmaceutical products Jubilant Pharma Ltd. (Seller) 5/4/2017 The Lagunitas Brewing Co. Brews and distributes alcoholic malt beverages Heineken NV 5/4/2017 Fluid Systems Engineering, Inc. Distributes hydraulic components and pneumatic products Ritter Technology LLC 5/4/2017 Ohio Pizza Products, Inc. Distributes Italian and pizza food products, small wares, and equipment Performance Food Group Co. 5/3/2017 Engage Agro USA LLC Engages distribution of agricultural chemical Belchim Crop Protection NV 5/2/2017 Four Star Salon Services, Inc. Distributes beauty products SalonCentric, Inc. 5/2/2017 Karoun Dairies, Inc. Produces and distributes cheeses and dairy products LAG Holding, Inc. 5/2/2017 Kildare Lumber Co. Provides wood windows, doors and cabinets Mead Lumber Co., Inc. 5/2/2017 Interparts Industries, Inc. Manufactures and distributes drive axles and component parts 5/1/2017 EZ Health Solutions LLC Distributes nutritional supplements Acology, Inc. Interparts Industries, Inc. /Private Group/ (Buyer) 5/1/2017 Cedar Infrastructure Products, Inc. Distributes iron castings, concrete pipe, and other items for infrastructure Mosaic Capital Corp. 5/1/2017 Gerdau Construction Products Distributes brick, stone, and related construction materials 5/1/2017 Trident Distribution Inc Distributes drywalls, steel structures, fasteners, plaster, and accessories Border Construction Specialties LLC Foundation Building Materials, Inc. 5/1/2017 Island Propane Corp. Distributes and retails propane products Paraco Gas Corp. 5/1/2017 K&H Manufacturing LLC Manufactures and distributes heated pet products Central Garden & Pet Co. (Seller) 5/1/2017 Peninsular Paper Co. Distributes food packaging, paper products, and foodservice disposables Imperial Bag & Paper Co. LLC 5/1/2017 Gypsum Wallboard Supply, Inc. Distributes wallboard and suspended ceiling systems 5/1/2017 Wallboard, Inc. Provides drywall and other construction materials 4/27/2017 NBGroup LLC Manufactures and distributes home decors Foundation Building Materials, Inc. Foundation Building Materials, Inc. Sycamore Partners Management LP 4/27/2017 Ferran Technology, Inc. Manufactures and distributes vacuum pressure gauge Sumitomo Heavy Industries, Ltd. (Both) 4/25/2017 Accudyne Industries LLC Manufactures and distributes industrial air compressor services Hitachi Ltd. 4/25/2017 First Class Foods, Inc. Supplies and offers meat products US Foods Holding Corp. 4/25/2017 PetroTech LLC Supplies petroleum equipment Spatco Petroleum Solutions 4/25/2017 GSC Technologies Corp. Designs and distributes storage and organization products Ameriform Acquisition Co., LLC 4/24/2017 Maverick Building Systems LLC Wholesales engineered wood products Zeeland Lumber & Supply Co. 4/20/2017 Acesur de Prado North America, Inc. Distributes and sells olive oils Aceites del Sur SA 4/20/2017 Coast Crane Co. Distributes and leases cranes and personnel lifts for construction Maxim Crane Works LP 4/20/2017 Go! Glass & Accessories Provides automotive glass, accessories, and protection services Uniban Canada, Inc. 4/20/2017 Pomerleau Gaz Propane, Inc. Distributes propane products Superior General Partner, Inc. 4/20/2017 S.M. Sneider Co., Inc. Provides food distribution services Sharon Food Distributors, Inc. 4/20/2017 Magic Rosin LLC Imports and distributes musical instruments Connolly Music Co., Inc. 4/19/2017 CarCo Technologies, Inc. Wholesales motor vehicle parts KAR Auction Services, Inc. (Seller) 4/19/2017 Chagrin Safety Supply, Inc. Supplies personal protection apparels Quest Management, Inc. (Latvia) 4/19/2017 RGA LLC Distributes traffic controllers, cabinets, and detection equipment MoboTrex, Inc. (Seller) 4/18/2017 Medtronic Plc (Medical Supplies Bus) Distributes surgical and medical instruments Cardinal Health, Inc. 4/18/2017 Weston Premium Woods, Inc. Distributes hardwoods, softwoods, and panel products Richelieu Hardware Ltd. 4/18/2017 First Tactical LLC Develops, manufactures and distributes protective gears Point Blank Enterprises, Inc. PAGE 5

7 ($ in billions) SPECIALTY DISTRIBUTION ECONOMIC UPDATE A Snapshot of Key Economic Indicators As of May 25, 2017 PMI INDEX 6 ISM NEW ORDERS INDEX Note: A PMI Index figure greater than 50 indicates expansion. Note: An ISM Index figure greater than 50 indicates expansion. PRODUCTION INDEX 6 U.S. MANUFACTURING CAPACITY UTILIZATION % 90% 80% 70% 60% 50% Note: A Production Index figure greater than 50 indicates expansion. MANUFACTURING INVENTORIES & BACKLOG 6 DURABLE GOODS NEW ORDERS $350 $300 $ Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Inventories Backlog of Orders Note: A Manufacturing Inventory Index figure greater than 50 indicates expansion; A Backlog Index figure greater than 50 indicates expansion. $200 $150 $100 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 One International Place Suite 2620 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) Washington, D.C th St. NW 2nd Floor Washington, D.C Phone: 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 1. Modern Distribution Management 2. Modern Distribution Management 6. United States Census 7. U.S. Federal Reserve 3. Modern Distribution Management 4. FactSet 5. PitchBook 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 a private limited company incorporated under English law with its registered office at 5th Floor, 6 St. Andrew Street, London EC4A 3AE, UK, registered with the Registrar of Companies for England and Wales (registration number ). Harris Williams & Co. Ltd 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. 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 2017 Harris Williams & Co., all rights reserved. PAGE 8