MRO marketers Wilmar and Barnett merged last year — but don’t tell their customers
Six months ago, two of the biggest players in the MRO (maintenance, repair, and operations) catalog market merged. And so far, probably not one of their catalog customers knows it.
When Moorestown, NJ-based Wilmar Industries acquired Jacksonville, FL-based Barnett this past September, the deal produced a $650 million, privately held company that sells plumbing, electrical, heating, and air-conditioning supplies to 160,000 building managers, contractors, and hardware retailers.
As of late February, the company still didn’t have an official name; at press time, it was called Newco. And the lack of a name seems to fit with the company’s intent. Barnett and Wilmar — which went through the Sturm und Drang of the public market, only to go private last year — are behaving like many contemporary newlyweds: They’re electing to keep their identities separate, at least for marketing purposes.
A seven-headed hydra
Say an apartment-building faucet breaks down in Chicago. The repair person flips through a Wilmar Industries catalog and orders a new one. At the same time, a hardware retailer restocking shelves in Cincinnati orders a faucet from a Hardware Express catalog. And a maintenance manager at a hospital in Hartford orders a faucet from a Maintenance USA book.
Later that same day, each person receives the same faucet picked from the same bin in the same warehouse. But the repair person gets his faucet in a Wilmar box with a Wilmar invoice; the hardware retailer receives hers in a Hardware Express box with a Hardware Express invoice, and the maintenance manager gets his in a Maintenance USA box with a Maintenance USA invoice.
It sounds simple. But to date, few other b-to-b catalogers — particularly in MRO — have managed the best-of-both-worlds strategy: An efficient, integrated back end and a front end that keeps customers loyal to the existing brands.
“More and more people are trying to do that, but have not had the capability,” says Jeffrey Germanotta, an analyst with Chicago-based investment bank William Blair & Co. “I would say [Newco] is a front-runner in that regard.”
A different sort of merger
Mergers aren’t unusual in the fragmented industrial distribution marketplace, where approximately 300,000 distributors supply the $200 billion-plus MRO market with everything from bolts to industrial furnaces. As in many other b-to-b fields, such as medical, dental, and business forms, “consolidation in distribution has been rapid and continuing,” says Ron Schreibman, vice president of the National Association of Wholesale Distributors, a Washington-based trade group.
In most cases, though, these unions take place among small regional companies, “with two locations and fewer than 20 employees,” says Bill Sanford, Newco’s chief financial officer.
The Wilmar-Barnett union, though, isn’t a roll-up of a smaller company into a larger or an acquisition of a troubled competitor. Rather, it’s a union of two companies sharing remarkably similar sizes, strengths, and histories.
Wilmar brought three catalogs to the nuptials: Wilmar, which targets apartment managers, and J. Sexauer and Trayco, which market to hospitals, schools and hotels. Barnett’s dowry consisted of four titles: Leran (propane supplies), Hardware Express (hardware retailers), Barnett (plumbing, electrical, and heating, vacuuming, and air-conditioning, or HVAC, supplies), and Maintenance USA (building and MRO supplies).
At the time of the merger, each company had about $280 million in sales, each had about 30 regional distribution centers that enabled quick order delivery, and each was a market leader in the MRO field. Each even sold similar product: faucets, valves, pipes, electrical wire, switches — anything that goes into a building’s infrastructure.
But each cataloger also had separate, and loyal, customer bases and separate marketing strategies. Wilmar, for instance, is a vertical player that focuses on high-volume apartment building accounts, some worth millions of dollars in annual sales. (Wilmar’s top executives, in fact, personally handled some of those top accounts themselves.) Its 200 field sales reps initiate almost 100% of its sales, using the catalog for follow-up purchases. Its J. Sexauer and Trayco divisions also rely largely on field sales reps.
Barnett, on the other hand, relies mostly on its catalogs and telemarketers to reach a broader market of smaller contractors, retailers, and maintenance workers. On average, its customers spend $4,000 a year on plumbing and maintenance supplies; Wilmar’s customers spend 25% more.
Newco’s diverse markets led to a well-defined integration strategy, Sanford says: “We don’t touch whatever touches the customer. And we integrate what doesn’t touch the customer.”
In fact, not even the company’s headquarters have merged. Barnett’s Florida headquarters will house mostly catalog and telemarketing sales for both Wilmar and Barnett; Wilmar’s New Jersey headquarters will house field sales. This keeps the top executives of Newco plane hopping. Both Sanford and Mike Grebe, president/chief operating officer of Newco, are Wilmar vets who maintain residence in New Jersey, while Bill Pray, former president of Barnett, heads the company’s direct marketing arm.
Follow the leaders
In a sense, the merged companies are as individual as their leaders. Barnett, the direct marketing expert, bears the mark of Bill Pray, who joined the company when it was a $5 million company selling plumbing supplies locally from a 24-page catalog.
Pray, who sports a deep tan, gold jewelry, and a booming voice, is the force behind Barnett’s sales growth, largely because he orchestrated the opening of more distribution facilities, built up a national telesales force, and developed spin-off catalogs for contractors, hardware stores, maintenance workers, and propane dealers. To improve margins and create a price advantage, in 1986 Pray developed a private label brand for plumbing products; today, those Elite, Premier, and Pro-Plus products represent 30% of Barnett’s sales.
Wilmar, on the other hand, was launched in 1978 by father-and-son team Marty and Bill Green. (Marty retired in 1996; son Bill now chairs Newco and is the company’s chief merchant.) Under the Greens, Wilmar established itself as a rapid supplier to apartment managers nationwide who needed immediate replacements for their broken parts. Building up a fleet of 175 trucks, by 1997 Wilmar offered not only next-day delivery but also same-day delivery to any customer in a 40-mile radius of its 27 distribution centers.
Two years later, Wilmar acquired M&A expertise in Sanford and Mike Grebe. Sanford, low-key in shirt sleeves and glasses, had previously pulled off scores of mergers and acquisitions as head of business development for Airgas, a Radnor, PA-based MRO distributor, and MSC Industrial, an MRO distributor based in Plainview, NY.
“Bill is one of the most experienced M&A professionals in distribution,” says Adam Fein, president of Philadelphia-based Pembroke Consulting, a management consulting firm in the wholesale distribution industry.
Meanwhile, Grebe, an earnest, energetic guy with a football player’s build, had worked out the operations and marketing ends of Sanford’s Airgas deals. “We’re a team,” Sanford says. “I do the front end, and Mike does the integration.” After leaving Airgas to become Wilmar’s president late in 1998, Grebe soon lured Sanford to join him as chief financial officer. One year later, in November 1999, they bought J. Sexauer and Trayco in a $85 million acquisition.
The plan now is to let Sanford and Grebe work out the details for consolidating Newco’s operations and field sales (no acquisitions yet, Sanford assures), while Pray, along with Pam Maxwell, vice president of marketing, organizes its direct marketing.
Maxwell, who had previously commanded the Rutland Tool catalog at Airgas, has just begun merging Wilmar’s and Barnett’s catalog production and mailing operations. The watchword here is finesse: For the moment, at least, you won’t see a lot of Wilmar salespeople dropping in on Barnett customers, or Barnett sending Maintenance USA catalogs to Wilmar’s base of apartment managers. You won’t even see a merger of the company’s Internet sites.
What you will see are the gradual changes wrought by back-end and marketing improvements. Barnett will tap into Wilmar’s service expertise; Wilmar will benefit from Barnett’s database marketing and cataloging smarts. Each will also benefit from the other’s product expertise. Wilmar, along with J. Sexauer and Trayco, will soon begin carrying Barnett’s private-label plumbing products, while Barnett will start carrying Wilmar’s private label ceiling fans.
“We’re looking at the potential to cross-pollinate the product offer,” Maxwell says. But, she points out, the catalog brands themselves won’t change: “They have qualities we don’t care to dilute.”
Of the two, Barnett is clearly the catalog strategist. The company annually mails 3 million 1,200-page books to its 71,000-name customer base, supplementing that with 5 million sales flyers. Wilmar, on the other hand, mails its 1,000-page catalog annually to 45,000 customers, mostly as a reference guide for reorders. Barnett sends out about 80% of its books to prospects; Wilmar does no catalog prospecting.
Clearly, says Don Libey, of Libey-Concordia, an investment banker to the catalog industry, “the folks at Barnett have got a lot to teach Wilmar. The two can jointly build a strong catalog presence.”
For a sense of that strength, consider database marketing. Until now, Wilmar had nothing more than a list of customer names and purchase histories. Now it’s scheduled to join Barnett’s customer database, which launched in 1999 to improve Barnett’s mailing strategies through customer segmentation. For both companies, the database adds a level of marketing power: By deciding whether a Maintenance USA customer might benefit from a Leran sales catalog or whether Hardware USA book should mail to an inactive customer, “we can really target our pieces and raise our response rate,” Maxwell says.
Predictive modeling can also show whether certain Barnett buyers might benefit from a call from a Wilmar sales rep or whether inactive J. Sexauer buyers might respond to a telemarketing prod. “By modeling the habits of existing customers,” Maxwell adds, “we can better direct our field reps’ efforts to target prospects that look and act like our best customers.”
For its part, Wilmar brings Barnett service expertise. Like proud new parents, Newco’s executives have displayed in Barnett’s lobby a framed photo of their first “offspring”: Newco’s new $10 million, 320,000-sq.-ft. national distribution center in Nashville, TN.
Thanks to the fulfillment center — which went live in July — Newco can now buy and store its 45,000 SKUs in huge volume. And thanks to Wilmar’s truck fleet and 64 regional distribution centers, Newco can now move product quickly and efficiently to each of its 64 regional distribution centers (which is soon to consolidate to about 50). Newco plans to get its product to customers faster and cheaper than any competitor. Currently, about 95% of Wilmar’s orders are shipped the same day; half of those arrive that same day. Barnett customers, which had never had same-day delivery, now get the same service.
As major MRO players, both Barnett and Wilmar have been through fast rises and nasty downturns. Five years ago, both were hot IPOs, riding the wave of catalog fever on Wall Street. Barnett went public in 1996 at $80 million in sales; Wilmar went public that same year at $100 million in sales. Four years later, however, in the dot-com frenzy of 1999, the stock price of both companies went reeling, trading close to the IPO price, despite having tripled in size.
Most analysts agree the fault lay in the markets, not in the companies. “They were really smart guys, and they were getting no valuation whatsoever,” says Jim Cramer, cofounder of investment news service TheStreet.com. By the late ’90s, Wall Street had cooled to small-cap companies and to companies doing “old-fashioned” distribution. “The big-cap tech names became very exciting,” adds Cramer, “and when the Web got hot, Wilmar and Barnett were seen as old economy.”
Given the cold public market, Wilmar went private in a leveraged buyout in May 2000. Two months later, it bought Barnett out of the public market as well, officially merging in September. Sanford says bigger is better, at least in Wall Street’s eyes. Once Newco reaches $1 billion in sales, it’s payback time. Newco can either attract another buyer or, more likely, go public again.
“At that size, we’ll be large enough to get the attention of research analysts, which will enable us to take the company public again,” says Ernest Jacquet, managing partner of Boston-based Parthenon Capital, a private-equity firm that financed the merger.
Will it happen? “We’re pouring in capital to expand into a billion-dollar operation,” Jacquet says. “We have the systems in place, and the only limit to expansion is our ability to control the growth. We are now the largest [MRO distributor] in the country in apartment complexes, and we want to become the largest distributor in all our business segments.”
Wilmar and Barnett plan to tread carefully, though, on their way to that goal. Integrating back ends while maintaining front-end brand loyalty may be a tough task, but observers say it’s the right one. “Successful consolidators match the degree of centralization to the marketplace,” says Pembroke Consulting’s Fein. And Newco “is doing the right things to be a winner.”
Freelance writer Diane Cyr is based in West Hollywood, CA.