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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.
