Progressive Distributor - Bigger and better

Bigger and better

Cameron & Barkley sets ambitious growth goals. It aims to become a nationwide distributor with $2 billion in annual sales by 2004.

How big do you need to be in order to become a dominant nationwide distributor of MRO supplies? Thats what many industry watchers keep asking. No matter a companys current size, every distributor believes it must grow larger.

Take, for example, Cameron & Barkley, the Charleston, S.C., distributor of industrial, electrical, electronic, safety, power transmission, cutting tools, abrasives and MRO supplies.

Most distributors look with envy on its $600 million-plus in annual sales and would be satisfied. Not so at CamBar.

We feel we need to be larger and have much broader geographic coverage, says Jim Warren, president and CEO.

With 1998 sales in excess of $614 million, CamBar now operates in 24 states at more than 80 locations, plus Mexico and Canada. Warren says the companys goals are to grow annual sales by 10 percent and an additional 10 to 15 percent through acquisitions.

Thats pretty hard to achieve in todays market because markets arent growing at 10 percent, he admits. Were trying to take a very aggressive posture.

Even if internal growth falls short of that lofty target this year, three acquisitions in the first half of 1999 brought an additional $104 million in sales, a nearly 17 percent increase.

Recent acquisitions include the Don E. Williams Co. (deWco), a distributor with approximately $42 million in annual sales headquartered in Rock Island, Ill.; Warner Industrial, a Minneapolis distributor with annual sales of $50 million; and Main Electrical Equipment Co., a Louisville, Ky., electrical distributor with yearly sales of about $12 million.

Storied past, bright future
Founded in 1865 in Charleston, Cameron & Barkley has taken great strides since its early days helping to supply materials to rebuild the post-Civil War South.

A perenially strong player in the southeastern United States, the deWco and Warner acquisitions now give CamBar a major presence in the Midwest. Each company is viewed as a platform acquisition on which to build. Purchasing Main Electrical strengthens CamBars electrical supply position in a market where it had been viewed primarily as an industrial distributor.

CamBar hopes to boost the local and regional presence of acquired companies by introducing a broader product line, by applying increased resources, such as expertise in integrated supply, on-site storeroom management and other marketing tools, and by leveraging economies of scale gained through increased buying power.

Wearing two hats
Rufus Barkley Jr. fully understands the worries distributors face when selling their long-held businesses. While he now wears the hat of buyer, Barkley also has worn the sellers hat, having sold his family business in 1975 to the employees of the company.

He frequently relates his experience to distributors who are making the difficult, once-in-a-lifetime choices required when selling a family-owned company.

One of the things Ive been able to do is establish a relationship with some of the owners who are in the position today that I was in then, Barkley says.

Owners are concerned about issues such as how to liquidate their investment, tax ramifications, and how to protect the future of valued managers and employees, many with lengthy service records under the departing ownership.

Barkley struggled with those same issues in the early 1970s. Newly established laws on employee stock ownership plans (ESOP) provided a way to transfer ownership from family members to current and future employees.

I didnt like the idea of putting the company into the hands of someone who really didnt know the business, Barkley recalls. A lot of the people who had helped me build the business after my father died were still with the company, and I didnt want to see their future hurt in any way. So the employee ownership idea appealed to me.

He credits the sale of the company to the ESOP as a major reason for the companys continued success.

Relating his story to todays sellers provides them some sense of security about what will happen to their company and their employees, Barkley says.

In some cases, they dont want to continue to work, but theyd like their employees to be looked out for and provided for the way weve done it here at Cameron & Barkley, he says.

The businesses joining our family ought to about double in size within three to five years, as we bring to bear our market basket along with the successes theyre already having, says chief financial officer Randy Bishop.

What type of distributor will CamBar likely buy next? In what geographic regions?

We need to do something in the Northeast, the Southwest and the West Coast, says Warren, adding that acquisition efforts will likely focus on distributors whose strength lies in industrial, electrical and electrical construction business.

Our goal is to be the No. 1 provider of electrical construction material and the No. 1 provider of industrial MRO in every market we serve, Warren says.

Like other consolidators competing for distributors, CamBar is interested in high-growth, high-profit companies that are considered market leaders. During the due diligence process, CamBar researches the candidate to determine its market presence, examines financial records (paying particular attention to cash flow), plus considers intangibles such as the corporate culture and its reputation among customers and suppliers.

Were also looking for companies that have good people who want to stay on, Warren says. One of the issues as you grow is finding adequate talent.

Attractive candidates generate between $5 million and $50 million in yearly sales, says Bishop.

But we also have the capacity to look at companies that do $200 million or more in sales volume, he adds.

So far, acquisitions have been for cash, funded primarily through bank debt. While not revealing a specific number, Bishop says the companys borrowing capacity is very substantial.

Bishop believes CamBars ability to pay cash gives the company a leg up on other consolidators that have structured deals using company stock.

Stock values of many competitors have dropped, so the currency that some companies are using to buy these businesses has been devalued, he says.

The urge to action
Several key trends are driving the acquisition strategy. Foremost is a growing number of customers who want to do business with distributors capable of exporting good practices from one plant to another. That requires a larger geographic presence, a broad product and service offering, and a highly trained, customer-oriented staff and management team. It also requires an ability to adopt a system of best practices and to consistently measure performance.

The growth of integrated supply and other managed inventory programs, electronic commerce, the Internet, plus catalog and direct marketing efforts, also requires capital availability. It is becoming increasingly difficult for smaller distributors to keep pace.

These are all examples of things the smaller distributor cant do very easily, says Joel Bateman, executive vice president.

He points to CamBars wholly owned subsidiary, Material Management and Services Inc., which offers on-site inventory management services; the companys integrated supply capabilities; and marketing efforts such as a 240,000-product CD-ROM catalog, paper catalogs and soon-to-be-operational electronic commerce ordering capabilities through the Internet as examples of the kinds of benefits that CamBar offers potential sellers.

One of the things we talk about with a seller is the excitement we can bring in terms of marketing, says Bateman. Were not just a new guy on the block trying to throw things together. Weve been in business 134 years. We have a solid strategy.

CamBars emphasis on integrated supply, plus marketing programs such as the Value Plus Program, which documents cost savings, cost avoidance and productivity enhancements for customers, are major reasons why deWco president Steve Doellinger says hes excited about joining the team.

Our customers were saying that in order for us to do integrated supply, the Don E. Williams Co. needed to have a national presence, says Doellinger.

The new ownership opens doors for deWco.

Cameron & Barkley has many customers with locations in deWcos and Warners market area. So theyre bringing customers and introducing them to us, Doellinger says. Well be doing some of the same with customers that have corporate offices in our backyard.

He adds that CamBars larger size gives the company a stronger market presence.

Jim Zechmann, president of Warner Industrial, agrees that his company needed to grow larger in order to continue to compete for business from customers who expect suppliers to handle multiple plant locations.

We realized that we needed to have a national presence. One of the things CamBar brought to the table was a strategic plan to grow the business nationally and in Mexico and Canada, he says. We didnt think we could grow fast enough.

Rufus Barkley, chairman, says theres a greater awareness among distributors about the importance of size and building market share in order to gain favor with customers and suppliers. He believes an inability to change with the times is one reason some distributors fall by the wayside.

Many of the good companies I knew when I started in this business in 1954 have gone out of business, says Barkley. He blames their demise on three factors:

1) They tried to preserve the company as a family business. At some point, that string can run out. The talent is no longer there or theres bickering in the family.

2) Companies are too small to keep up with rising costs of technology and cannot deal with multi-plant customers and multiple suppliers.

3) Some companies spread themselves too thin. Many distributors that failed tried to be in too many businesses. We stuck with industrial and electrical, which tend to complement one another.

Welcome aboard
To help employees from acquired companies learn more about their new employer, the communications department produced a brief video that is shown during a welcome presentation shortly after distributors join the company. It begins with a brief history of the company and cites several awards received from customers and industry organizations, including the 1998 Supplier of the Year Award from Delta Air Lines and the Outstanding Supplier Award from Saturn. It also features interviews with employee-owners expressing their job satisfaction.

Its like one big, happy family, says Milt Williams, an account rep featured on the video.

Cynics might view the video as a rah-rah attempt to rally the forces. But to new employee-owners worried about an uncertain future with a new employer, its an effective way to introduce and welcome them into their new company.

It also demonstrates CamBars effort to maintain a family atmosphere, despite its burgeoning size, because it addresses concerns that employees tend to have whenever their company is sold.

Whats going to happen to my job? Will my pay be affected? What will happen to my benefits? My retirement plan? Those four questions are among the most often voiced by employees immediately following an acquisition.

We believe we do a good job of anticipating those questions and addressing them, says Bishop.

deWco and Warner employees welcomed CamBars stronger benefits package, which includes a lower deductible than they previously paid, plus vision care and dental coverage.

CamBars reputation also helps allay fears.

Most of the employees have heard of us, says Bateman. They can see how were expanding. If we go in and say heres our marketing plan, heres how were doing and how together we can take one plus one and make three, we can create a new era of excitement.

deWco and Warner were highly sought by other companies interested in acquiring them. Zechmann and Doellinger both report having serious discussions with three or four other distributors.

In the end, we just felt more comfortable with CamBar, says Zechmann. One of the most compelling reasons we went with Cameron & Barkley was the fact they are an employee-owned company.

deWco was 100 percent employee-owned and Warner had 40 percent employee ownership.

I think the psychology of employee-owned companies is different from publicly held or privately held companies. That fit was one of the things that solidified our alliance with CamBar, Zechmann says.