Distribution Deal: Wesco Wins Bidding War For Anixter

With the acquisition, the combined company will have a market-leading 13 percent share of what is now a very fragmented electrical and data communications distribution market.

Consolidation of the distribution market continues as data communications and security distributor Anixter International has agreed to a $4.5 billion bid to be acquired by Wesco, a giant in the electronics distribution market.

Pittsburgh-based Wesco International Monday said that Glenview, Ill.-based Anixter has agreed to the acquisition, which was officially disclosed on Dec. 24. Anixter is a global distributor of technology for network and security, electrical and electronic, and utility power businesses.

Wesco had to raise its offer for Anixter twice in response to bids from Clayton, Dubilier and Rice (CD&R), a New York-based global private equity manager that in mid-2019 acquired a large equity stake in Sirius, a San Antonio-based solution provider.

[Related: Behind The Scenes: A Timeline Of Apollo's Acquisition Of Tech Data]

Wesco serves industrial, contractor, utility and government markets with products related to industrial networking, intelligent buildings, cloud computing, alternative energy, broadband communications, critical infrastructure protection, LED lighting retrofits, and physical security.

The company has 500 branches worldwide with 9,100 employees generating a total annual revenue of $8.2 billion.

Under the terms of the deal, common shares of Anixter will be converted to a total value of about $100, which includes a combination of about $70 in cash plus shares of Wesco common and preferred stock.

Wesco on Dec. 24 originally offered to acquire Anixter for $90 per share, but two days later raised its bid to $93.50 per share, which included $63 per share in cash after CD&R showed interest. CD&R on Jan. 2 then raised its bid to $93.50 per share in cash, and Wesco the following day increase its bid to $97 per share, which included $63 per share in cash. Wesco than sweetened the deal to a total of $100 per share, which Anixter said was fair. CD&R then terminated its bid.

John Engel, Wesco's chairman, president and CEO, Monday told investment analysts in a conference call that the merger will create the premier electrical and data communications distribution supply chain and services company.

Engel said that Wesco has known Anixter for decades and has respected the company for its capabilities.

"By merging these businesses, we will be creating a stronger enterprise that will create value through enhanced scale, a broader product and services portfolio, and the generation of substantial synergy," he said.

The deal, which is expected to close during the second or third quarter of 2020, will result in a company with a combined annual revenue of over $17 billion and $870 million in EBITDA (earnings before interest, tax, depreciation, and amortization), Engel said.

"The combination of two long-standing and successful distribution businesses with operations on complementary industries, products and geographies is very compelling," he said. "Combining Wesco's legacy capabilities in electrical with Anixter's capabilities in data communications, security, and wire and cable will enable us to offer customers a diversified product and services portfolio to improve the operations and supply chains."

Wesco and Anixter are part of what Engel termed a very fragmented electrical distribution industry with a total market worth of $114 billion but where the top 200 firms collectively control 51 percent of the market.

With the acquisition, the combined company will have a market share of about 13 percent, he said.

"This transaction will create the largest electrical and data communications distribution business in North America," he said. "But the industry will remain fragmented after the transaction."

Wesco's acquisition of Anixter comes during at time of big changes in distribution in general.

IT distribution company Synnex last week said it will split into two independent public companies by moving its Concentrix business into a separate company.

Private equity firm Apollo Global Management in December beat Berkshire Hathaway to seal a deal to acquire IT distribution company Tech Data at a value of about $5.14 billion.

Reports in August indicated that China-based HNA Group may be looking to sell its stake in global IT distribution kingpin Ingram Micro for about $4 billion, although such a deal has yet to be confirmed.

Wesco itself has of late been a very acquisitive company. The company in March 2019 acquired certain assets of Sylvania Lighting Solutions from OSRAM Sylvania. In 2016, the company acquired Atlanta Electrical Distributors, and in 2015 acquired both Needham Electric Supply and Hill Country Electric Supply. Prior to that, it also acquired several Canada-based electronics distributors.