Mergers & Acquisitions – Q2 Update

This update is brought to you by Pompeo Group and its strategic merger and acquisition partner Tounge Associates.

We sincerely hope you and your families continue to weather the COVID-19 pandemic safely!  It has been a challenge but taking it a day at a time we all seek to move forward.  Here are some of our observations of what effects COVID has had on industry in general. 

Manufacturing disruption:

• Products related to building trades took a big hit.
• Products related to trade-shows, hospitality, travel and similar sectors
• Consumer products supported by increased online ordering expanded.

Transformation of the way business is done:

• Zoom vs In-person, while Zoom fatigue exists it got us through the storm.
• More trust in employees out of management’s line of sight.
• High degree of digitization sought to mitigate dependence on employees.
• Change in habits—for example, E-Grocery may remain as many like the convenience while remote learning is a pain to most parents who want it to end.

Supply chain disruption:

• Shut down of production facilities has created a shortage of some materials and products.
• Inventories have been depleted during these shut-downs.
• Turning back on the production spigot is occurring much slower than before the shut-down occurred.
  • Takes longer to rebuild the inventory surpluses as demand continues to draw down materials as quick as they are produced.
  • Businesses are competing with robust unemployment benefits for line workers who would rather stay home and collect then go back to work in the factory.

M&A activity increases—according to Goldman Sachs Insights on their website: “The 2020 M&A environment has been marked by a notable shift to virtual execution from what was once a face-to-face process. Despite ongoing COVID-related restrictions that continue to impact traditional M&A execution, volumes have surged to record levels.” They further explain, “after a significant halt of M&A activity last April the remainder of the year saw credible increase in deal execution as industry professionals become more comfortable with virtual deal making.  The face-to-face aspects like meeting management was more difficult but much of due diligence was least challenging.  Additionally, the benefits of virtual sessions far outweigh the challenges they are facing. Clients appreciate: · The potential for enhanced outcomes · Faster timelines · Less management time commitment · Increased confidentiality · Significant expense savings.”  

Additionally, there is tremendous capital sitting on the sidelines looking for opportunity- according to PwC Global on their website:

“By many indications, the next six to 12 months could be busy ones for mergers and acquisitions. Companies anticipating economic fallout from the global coronavirus pandemic have an accumulated war chest of more than $7.6 trillion in cash and marketable securities—and interest rates remain at record lows. Pent-up demand may kick in as the availability of vaccines increase the trifecta of CEO, investor and consumer confidence. For companies facing imminent distress, consolidation may be inevitable. For others, dealmaking may be the best, and fastest, way to fill urgent gaps in the skills, resources and technologies they need to create value down the road.”

Finally, we think three key areas of potential great concern for business leaders are workforce development, taxes, and inflation- all of which can create stumbling blocks to future growth regardless of the industry.  Each one of which could be a lengthy article in and of itself but suffice it to say these potential issues should be strongly considered as aging owners evaluate their exit or succession planning strategy.

Here is what we saw in merger and acquisition activity in the lighting, controls, electrical and IoT industry over the past 60-90 days:

2021 M&A activity in lighting began with two independent rep agencies–Pyramid Lighting Group and Synergy Electrical Sales—announcing at the very beginning of the year that they were joining forces.** February saw international distribution titan Rexel acquiring WESCO’s Canadian utility business.* Osram divested Digital Lighting in early February* and in the same month in an intriguing move Philadelphia rep agency Illuminations, Inc. acquired New York Digital from Acuity Brands. With this acquisition, Illuminations becomes the only agency to cover both the NYC Metro and Philadelphia markets.   

In February, Osram announced they were divesting a portion of its Digital Lighting division*.  Entertainment lighting saw acquisition activity in February when Morris Light & Sound was purchased by Solotech.***   In March, Main Light Industries was acquired by Michael Cannon.***   Later that month saw a big merger when ULT (Universal Lighting Technologies) was acquired by Douglas Lighting Americas.* The fact that ULT was acquired was not a complete shock, though not many people would have predicted that the suitor would be Douglas.  This new (combined) company should be an interesting organization to watch.  

April saw a fascinating transaction when it was announced that GE Current (a Daintree company) had purchased Forum Lighting out of Pittsburgh. More than one industry observer had been curious about GE Current’s strategy and commitment to lighting, but their acquisition of Forum seemed to answer that question. It will be interesting to see if GE Current will be adding other lighting manufacturers to their stable. Last month also saw W.A.C. Lighting’s purchase of Schonbek Lighting.****  Design Holding S.p.A (the Italian holding company for international brands B&B Italia, Flos, Louis Poulsen) picked up YLighting.com and Lumens.com.*****   Ohio’s Teron Lighting sold to a private equity firm and last month it was announced that two upper Midwest rep agencies Pulse Products (formerly the Cooper Lighting agent) merged with TSR Lighting + Controls (the Genlyte/Signify agent).**  This new company will represent their combined line cards for Minnesota as well as North and South Dakota.

And the flurry of merger activity continues this month. Just this week, three transactions made the headlines: According to Edison Report, Austrian majority owner ‘ams’ released a ‘new’ offer to takeover the remaining 28% in Osram.  A strategic merger was announced this week with Riffle & Associates out of Cincinnati and Kentucky-based One Source Lighting became one.*  In other agency moves,  Diversified, a rep agency in Eastern PA and Delaware have stated that their New Jersey location will merge with Liberty Lighting Group.*  We expect this trend to continue this year as lighting rep agencies seek to increase market share and or expand their geographic reach and reach into neighboring territories and states.

To help business owners, Pompeo Group and Tounge Associates are pleased to continue the offer we made in the last update of a 20% discount from our regular valuation fee for 60 more days which can help facilitate both your internal business planning for 2021 and beyond, whether that decision is to sell in the near future or to simply establish a benchmark for growth to attain the value you desire to ultimately retire in comfort many years from now. In the meantime, in spite of all the upheaval and uncertainty we are still seeing acquisitions moving forward in the lighting, electrical and IoT markets. 

Tounge Associates’ excellent source of M&A experience combined with Pompeo Group team’s nearly three decades of lighting and electrical industry recruitment experience will help firms—whether it is a manufacturer, wholesaler or design firm—to source the right buyer, the best merging partners or the most strategic acquisition targets. Both Tounge Associates and Pompeo Group understand the importance of confidentiality and base our reputations on extreme sensitivity to this matter. As a result, much of our work comes through recommendations from satisfied clients. 

If you would like to arrange an initial confidential discussion to discuss these options, please contact us as indicated below. 

If you’d like to learn more about our firms, please visit Pompeo Group’s about us page or toungeassociates.com.

Acquisition information primarily courtesy of *Edison Report except for **PLSN Magazine ****Furniture Lighting & Décor, ***Inside Lighting,  *****Linda Longo/Enlightenment

If you would like to arrange an initial confidential discussion to discuss these options, please complete the form below and we will be in touch as soon as possible.