EW moves aggressively in New England
The power of a platform, September 15, 2006

Buy, Build…or Both

It’s no longer big news when an electrical wholesaler is sold or acquired.  Perhaps some of the recent mega-deals might even leave us a bit jaded.  But is all this consolidation, buying and selling benefiting the customer?

In New England it is.

US Electrical Services, LLC burst onto the scene this summer with three quick and important acquisitions – Electrical Wholesalers, Wiedenbach-Brown, and Monarch Electric (followed just a few days ago by Duplex Electric).  And while the word on the street is that USESI has more acquisitions in the works, it’s perhaps even more interesting to witness why Chairman and CEO Richard Worthy calls the company a ‘build up’ and not a ‘roll up.’ 

Since acquiring Connecticut based Electrical Wholesalers in mid-June, USESI has been very busy building up the EW presence beyond Connecticut.  In just 3 months, EW has:

• Opened a new facility in Fall River, MA
• Attracted key industry experts and signed leases for the following branch facilities:
  • Providence/Cranston, RI
  • Worcester, MA
  • New Bedford, MA
  • Waltham, MA

All of which are slated to open before the end of the year. 

• Leased 135,000sf of warehouse space in Stoughton, MA for a new Regional CDC
• Announced plans to open 4 more locations around Boston in the first quarter of 2007
• Announced plans to build a new Regional CDC in the greater Hartford area to service the EW Connecticut business

So in just the greater Boston area alone, USESI will bring online more than a quarter million square feet of capacity.  All of this is in addition to the company’s recent new openings in New York and New Jersey and announced openings in Florida.

Clearly this is not a company just buying other companies.

What is a build up?

Carl Brand, Regional President responsible for upper New England, joined USESI on June 6, 2006.  “Within a couple of weeks, we had some of the best people in the industry coming here.  And within 3 weeks we were taking orders”, said Brand.  “Our backlog is well over $4M and our Providence, RI branch alone is trending to $20M on an annualized basis.” 

Impressive, sure.  But even more so when you consider that the Providence branch isn’t even open yet.  While a location has been leased, the branch fit out won’t be completed for a few more weeks.  In the meantime, more than a dozen new Providence-area EW employees are working out of temporary offices.  

According to Brand, there are many factors that have allowed his team to move at lightning speed.  Hiring only talented, industry veterans with strong experience serving customers in the marketplace.  A decentralized, “hands off” approach which allows the local business leader – Brand – to make quick, local decisions.  That makes for a dynamic, responsive environment which naturally attracts good people who want to work in a stimulating place.  

But, according to Marty Mesale, EW Executive Vice President in Providence, “the single most important reason we’ve been able to move quickly and successfully is: Electrical Wholesalers of Connecticut.  Their platform has allowed us to build up our operations in a fraction of the time it would normally take.” 

Platforms – a decentralized strategy to quick growth

To better understand how USESI leverages its “platform” businesses to “build up” operations, it’s helpful to look at the businesses USESI has purchased so far and to examine how some are being grown, and others fixed. 

Electrical Wholesalers has a long, distinguished history in Connecticut.  Celebrating its 50^th year, EW has 22 locations throughout the state and is approximately $172M in revenue on a trailing twelve months basis.  Beyond its extensive branch network, EW is renowned for its local stock, large fleet of delivery trucks, aggressive pricing and on hand inventory.  While the company declines to disclose profitability figures, it’s safe to assume that since former owners Arthur and Robert Namerow were able to grow their business significantly over the last 15 years, EW does a lot of things very well.

“The basic business model we operate,” said John Reznick, President of EW, “has been honed over the years.  Our operational backbone – the processes, technology, back-office functions, etc. we use to service our customers in Connecticut – has matured as our sales have grown.  Because we are of a sufficient size with robust practices, we can scale up.”  And scale out.  Not only is the EW platform helping to enable the growth in upper New England, but it also allows Reznick’s region to grow.  He too is looking at acquisitions and opening branches both inside and outside Connecticut.

In essence, Brand, Mesale, and other managers like Chris Roche in Waltham, MA are combining the sales and customer relationships they can bring up in northern New England with the EW operational backbone down in Connecticut.  Reznick wins because he is able to spread his operational costs over a larger revenue base thereby lowering his costs as a percentage of sales.  And Brand wins because he can ‘borrow’ the EW model and get operational more quickly.  Plus, and this is a crucial piece of the strategy, USESI does not take a one size fits all approach.  The most important factors that influence local customer buying habits – vendor lines, stocking levels, pricing, credit decisions, marketing and promotions – all are handled locally. 

USESI does not have a central purchasing department, nor a central marketing group.  In fact the new USESI headquarters in Exton, PA has a modest 1,800 square feet of office space and 6 employees.

The strategy is clear – a decentralized model that leverages operationally strong platforms plus strong, local sales teams.

Build?

Buy?

Both!