Information obtained from third-party sources is considered reliable, but we do not guarantee that the information herein is accurate or complete. This report was prepared within
Raymond James & Associates' Investment Banking Department and is for information purposes only. This report is not a product of Raymond James & Associates' Research
Department; recipients of this report should not interpret the information herein as sufficient grounds for an investment decision or any other decision. The report shall not constitute an
offer to sell or the solicitation of an offer to buy any of the securities mentioned herein; past performance does not guarantee future results. © 2019 Raymond James & Associates, Inc.,
member of New York Stock Exchange/SIPC.
Distribution Quarterly NewsletterQ3 2019
FOR INSTITUTIONAL USE ONLY
DISTRIBUTION QUARTERLY NEWSLETTER
In our Q4 2018 newsletter we touched on Masco’s concurrent divestitures
of its windows and cabinets businesses, which together account for over
$1.7 billion in revenue. At the time, Masco spoke about a “strategy to
drive the full potential of our core businesses” and an intention to “actively
manage our portfolio to drive shareholder value”. Sector peers clearly
took note, as the move has precipitated a wave of transformational break-
up announcements in 2019.
Boards are charged with maximizing shareholder value over the long term
via any means available to them. Since the financial crisis, that has been
most easily achieved through a combination of organic and inorganic
growth. However, organic growth has become increasingly challenged,
and while M&A remains important, balance sheet leverage is increasingly
on investors’ minds.
As a result, Boards have been forced to look harder at alternative means
of generating shareholder value. The “corporate split” has gained traction
in 2019; on the heels of Masco’s significant divestitures, we have seen
Eagle Materials and HD Supply announce transformational splits in recent
months. PPG Industries has also been under pressure from its activist
investor – Trian Partners – who is demanding a split of its architectural
coatings business from its manufacturing and industrial businesses.
The individual facts differ in each case – activist Sachem Head observed
a lack of synergy between Eagle’s segments and successfully pushed for
separation, while Trian believes PPG can unlock value by spinning off
higher value units. HD Supply’s businesses had “achieved sufficient scale
to operate as independent companies” (and no doubt they were watching
the situations at Masco, Eagle and PPG very closely).
In all cases, however, the underlying forces are strikingly similar. The
corporate split is becoming the favored means of unlocking new
shareholder value in a lower growth outlook environment. These new,
more focused entities will pursue independent strategies, take on
appropriate capital structures and, most importantly, achieve a full and
fair valuation that is not encumbered by unrelated businesses.
When attention was solely on growth, a blind eye was turned on imperfect
portfolios. If that dynamic is shifting, there are plenty of other “diversified”
portfolios across the sector that could also be due for a break-up.
Better Off Apart
Informed Advice.
Quality Results.
1. Represents share price one day after each company announced the respective
separations / divestments.
Share Price Following
Separation Announcement(1)
$37.9
$39.2
Pre-Announcement Post-Announcement
+3%
$73.3
$84.3
Pre-Announcement Post-Announcement
+15%
$37.6
$40.0
Pre-Announcement Post-Announcement
+6%
Divestment of Windows and
Cabinets Business
Separation of Heavy Materials and
Light Materials Segments
Separation of Facilities Maintenance
and C&I Segments
DISTRIBUTION QUARTERLY NEWSLETTER
3
49.1
> 50 indicates expansion
Aug'16
Dec'16
Apr'17
Aug'17
Dec'17
Apr'18
Aug'18
Dec'18
Apr'19
Aug'19
47.2> 50 indicates expansion
Aug'16
Dec'16
Apr'17
Aug'17
Dec'17
Apr'18
Aug'18
Dec'18
Apr'19
Aug'19
49.5
> 50 indicates expansion
Aug'16
Dec'16
Apr'17
Aug'17
Dec'17
Apr'18
Aug'18
Dec'18
Apr'19
Aug'19
109.9
Aug'16
Dec'16
Apr'17
Aug'17
Dec'17
Apr'18
Aug'18
Dec'18
Apr'19
Aug'19
135.1
Aug'16
Dec'16
Apr'17
Aug'17
Dec'17
Apr'18
Aug'18
Dec'18
Apr'19
Aug'19
2.3%
1.9%1.8% 1.8%
3.0%2.8%
2.3%2.2%
4.2%
3.4%
2.6%
3.1%
2.0%
Q2'16
Q3'16
Q4'16
Q1'17
Q2'17
Q3'17
Q4'17
Q1'18
Q2'18
Q3'18
Q4'18
Q1'19
Q2'19
3Source: Bureau of Economic Analysis; Bureau of Labor Statistics; The Conference
Board; Federal Reserve; Institute for Supply Management.
Key Economic Trends
Real GDP Growth Consumer Confidence Index
Industrial Production Index Purchasing Managers’ Index
Manufacturing New Orders Index Manufacturing Production Index
DISTRIBUTION QUARTERLY NEWSLETTER
4
(30.0%)
(25.0%)
(20.0%)
(15.0%)
(10.0%)
(5.0%)
0.0%
5.0%
10.0%
Automotive & Consumer Building Products Electrical
Industrial S&P 500 S&P 500 - Industrials
(8.8%)
1.6%
3.0%
(0.8%)
0.7%
(19.6%)
21.4x
19.0x 14.7x
10.6x
Automotive &Consumer
Industrial BuildingProducts
Electrical
16.9x10.7x
9.6x 8.8x
Automotive &Consumer
Industrial BuildingProducts
Electrical
3.4x
2.7x 2.5x
1.0x
Electrical BuildingProducts
Automotive &Consumer
Industrial
3.4x
2.7x 2.5x
1.0x
Electrical BuildingProducts
Automotive &Consumer
Industrial
11.1% 9.5%8.8%
6.0%
Industrial Automotive &Consumer
BuildingProducts
Electrical
4
Distribution: Public Company Metrics
Source: Capital IQ; Company Public Filings.
TTM Share Price Performance
EV / TTM EBITDA Multiples P / E (TTM) Multiples
TTM EBITDA Margins Net Debt / TTM EBITDA Multiples
Mean: 9.2%
Mean: 11.1x Mean: 16.3x
Mean: 2.3x
DISTRIBUTION QUARTERLY NEWSLETTER
5
($MMs)
% of EBITDA Multiple (3)(4) P / E Multiple (3)(4)
Price 52 week Market Net Debt CY CY CY CY
Ticker Name 9/27/19 High Cap(1) TEV(2) / EBITDA TTM 2019 2020 TTM 2019 2020
Automotive & Consumer
GPC Genuine Parts Company 98.93$ 85.9% 14,451.5$ 17,794.1$ 2.3x 12.2x 12.1x 11.3x 17.4x 17.4x 16.5x
LKQ LKQ Corporation 31.33 94.5% 9,672.7 13,409.8 2.8x 10.4x 10.3x 9.8x 14.0x 13.4x 12.3x
POOL Pool Corporation 199.52 97.3% 8,249.6 8,881.4 1.8x 24.9x 23.4x 21.4x 32.8x 32.3x 29.5x
SITE SiteOne Landscape Supply, Inc. 72.89 89.5% 3,132.1 3,742.9 3.3x 20.1x 18.8x 16.7x NM NM 33.5x
Automotive & Consumer Mean 2.5x 16.9x 16.2x 14.8x 21.4x 21.0x 22.9x
Building Products
BECN Beacon Roofing Supply, Inc. 33.38$ 83.5% 2,289.8$ 5,605.6$ 6.0x 11.6x 11.3x 10.3x 15.6x 14.4x 11.3x
BMCH BMC Stock Holdings, Inc. 25.85 97.1% 1,730.1 1,915.1 0.7x 7.2x 7.6x 7.2x 12.8x 14.3x 13.5x
BLDR Builders FirstSource, Inc. 20.39 98.1% 2,374.8 3,780.1 2.7x 7.2x 7.8x 7.5x 9.7x 11.1x 10.6x
FBM Foundation Building Materials, Inc. 15.33 77.7% 659.3 1,236.9 3.3x 7.2x 7.1x 6.6x 17.8x 15.8x 13.0x
GMS GMS Inc. 28.67 93.9% 1,220.3 2,256.7 3.4x 7.4x 7.2x 7.2x 10.0x 9.5x 9.4x
HDS HD Supply Holdings, Inc. 38.72 82.1% 6,438.6 8,518.6 2.4x 9.7x 9.8x NA 10.7x 11.0x NA
WSO Watsco, Inc. 166.53 92.7% 6,329.2 6,770.7 0.4x 17.2x 16.7x 15.7x 26.0x 25.3x 23.9x
Building Products Mean 2.7x 9.6x 9.6x 9.1x 14.7x 14.5x 13.6x
Electrical
AXE Anixter International Inc. 69.02$ 97.4% 2,334.4$ 3,585.4$ 2.8x 8.0x 7.9x 7.5x 10.6x 10.2x 9.7x
AIT Applied Industrial Technologies, Inc. 55.42 69.8% 2,151.0 3,000.6 2.6x 9.1x 9.2x 9.0x 12.9x 13.2x NA
HWCC Houston Wire & Cable Company 4.67 57.8% 77.7 151.2 4.8x 9.8x NA NA 9.7x NA NA
WCC WESCO International, Inc. 47.28 76.0% 2,008.4 3,374.5 3.3x 8.1x 8.1x 7.7x 9.4x 9.2x 8.3x
Electrical Mean 3.4x 8.8x 8.4x 8.1x 10.6x 10.9x 9.0x
Industrial
DNOW NOW Inc. 11.36$ 66.1% 1,235.9$ 1,217.9$ (0.1)x 9.8x 11.7x 10.2x 20.8x NM 17.9x
DXPE DXP Enterprises, Inc. 34.57 75.7% 608.7 824.1 2.1x 8.2x 8.0x 7.7x 15.8x 14.8x 13.6x
FAST Fastenal Company 32.23 89.7% 18,537.6 18,862.6 0.3x 16.0x 15.5x 14.4x 24.2x 23.2x 21.5x
GWW W.W. Grainger, Inc. 294.99 81.7% 16,172.2 18,260.2 1.2x 11.2x 11.0x 10.5x 17.1x 16.8x 15.7x
LAWS Lawson Products, Inc. 39.34 91.0% 354.7 356.6 0.1x 12.2x 11.5x 10.5x 21.2x 20.6x 19.7x
MRC MRC Global Inc. 12.03 62.9% 1,000.2 2,058.2 2.7x 7.9x 8.6x 7.2x 20.2x 15.0x 10.0x
MSM MSC Industrial Direct Co., Inc. 71.36 79.1% 3,939.2 4,436.8 1.0x 9.2x 9.3x 8.7x 13.5x 13.4x 12.2x
Industrial Mean 1.0x 10.7x 10.8x 9.9x 19.0x 17.3x 15.8x
0.0x
10.0x
20.0x
30.0x
40.0x
Consumer & Automotive Building Products
Electrical Industrial
5-Year Mean: 21.9x
6.0x
9.0x
12.0x
15.0x
18.0x
Automotive & Consumer Building Products
Electrical & Power Industrial
5-Year Mean: 12.3x
5
Distribution: Public Company Metrics (cont.)
Source: Capital IQ; Company Public Filings; Raymond James Research.
1. Market capitalization calculated using fully diluted share count.
2. Total enterprise value equals equity market value plus debt and minority interest less cash and cash
equivalents.
3. RJ research estimates where available; Capital IQ estimates used for others.
4. "NA" refers to estimates that have not yet been published. “NM” refers to multiples that have been excluded
due to extraordinary circumstances.
Historical EV / TTM EBITDA Multiples Historical P / E (TTM) Multiples
DISTRIBUTION QUARTERLY NEWSLETTER
6
Selected Transactions with Disclosed Deal Values
($MMs) Enterprise Value /
Date
Announced Target Description Buyer
Enterprise
Value
TTM
Revenue
TTM
EBITDA
Sep-19
Todd Pipe & Supply distributes plumbing
products to commercial, residential and
industrial sectors
160.0$ Not Disclosed 9.8x
Aug-19
City Pipe & Supply Corp. distributes
pipes, valves, and fittings to oil & gas,
mechanical and industrial end-markets in
Texas and New Mexico.
120.4 0.6x Not Disclosed
Jul-19
Peirce-Phelps, Inc. distributes heating,
ventilating and air conditioning products for
residential and commercial customers in
the United States.
85.0 Not Disclosed Not Disclosed
Jul-19
VSP Technologies, Inc. distributes
gaskets and fluid-sealing products to
industrial maintenance, repair, and
operations (MRO) industry.
80.0 Not Disclosed Not Disclosed
Jun-19
Kaman Industrial Technologies
Corporation distributes industrial parts to
MRO and OEM markets in the United
States and internationally.
700.0 0.6x 10.6x
May-19
Long Island Pipe Supply supplies fire
production products and provides
fabrication services across the United
States.
225.0 Not Disclosed Not Disclosed
Feb-19
Nexeo Solutions' Plastics Distribution
Business distributes a chemical and
plastic products in North America.
640.0 Not Disclosed Not Disclosed
Jan-19
PAC Industries, Inc. distributes, services,
and supports commercial laundry
equipment.
12.3 Not Disclosed Not Disclosed
Nov-18
VantaCore Partners supplies aggregates
for infrastructure, energy, commercial, and
residential markets.
205.0 Not Disclosed Not Disclosed
Sep-18
FBM's Mechanical Insulation Business
distributes and fabricates mechanical
insulation and complementary products for
commercial and industrial applications.
122.5 Not Disclosed 6.6x
Sep-18
Nexeo Solutions operates as a chemical
and plastic products distributor in North
America, Europe, the Middle East, Africa,
and Asia.
1,861.7 0.5x 9.5x
Jul-18
Atlas Supply distributes adhesives,
sealants and coatings to construction and
manufacturing industries in the Pacific
Northwest.
24.0 Not Disclosed Not Disclosed
Jun-18
Scott Equipment supplies commercial and
industrial laundry equipment, replacement
parts, and services for government,
institutional, and private clients in Texas.
14.8 Not Disclosed Not Disclosed
May-18
MORSCO distributes commercial and
residential plumbing, heating/ventilation/air
conditioning and pipe/valves/fittings
equipment in the United States.
1,440.0 0.8x 14.4x
May-18
All Integrated Solutions supplies standard
and specialty components and fasteners
to original equipment manufacturers and
other customers.
86.0 Not Disclosed Not Disclosed
Mean: 0.6x 10.2x
Median 0.6x 9.8x
6
Distribution: M&A Activity
Mechanical Insulation Business
Source: Capital IQ; Company Public Filings; MergerMarket; Raymond James
Research.
DISTRIBUTION QUARTERLY NEWSLETTER
7
Gross
Transaction Offer Offering % Mkt. Price Change From Offering to:
Pricing Issuer Ticker Type Price ($MMs) Cap 1 Day 1 Month Today
Sep-19 FBM Follow-on 17.00$ 80.8$ 9.9% (2.9%) N/A (9.8%)
Sep-19 GMS Follow-on 27.20 185.6 15.1% (0.8%) N/A 5.4%
Sep-18 VRTV Follow-on 41.40 62.1 8.6% (3.9%) (15.6%) (56.6%)
Dec-17 UNVR Follow-on 28.79 287.9 7.0% 7.2% 8.1% (28.8%)
Dec-17 GMS Follow-on 38.25 191.3 12.1% (1.8%) (3.5%) (25.0%)
Oct-17 BXC Follow-on 7.00 27.0 28.9% 14.6% 41.3% 354.4%
Sep-17 BECN Follow-on 47.50 300.4 10.2% 4.1% 17.2% (29.7%)
Sep-17 BLDR Follow-on 16.30 219.8 11.9% 1.7% 5.6% 25.1%
Jul-17 SITE Follow-on 51.63 280.7 13.8% 1.9% (2.7%) 41.2%
Jun-17 GMS Follow-on 33.00 165.0 11.3% 0.3% (13.0%) (13.1%)
Apr-17 SITE Follow-on 47.50 475.0 25.9% 0.0% 8.1% 53.5%
Apr-17 CWX Follow-on 4.56 26.2 6.6% (0.5%) 3.3% (25.4%)
Mar-17 VRTV Follow-on 54.85 98.7 10.1% (4.5%) (5.2%) (67.3%)
Mar-17 BMCH Follow-on 21.25 120.7 8.3% 0.5% 10.6% 21.6%
Mar-17 BLDR Follow-on 14.65 146.5 9.0% 3.4% 0.9% 39.2%
Feb-17 WSO Follow-on 144.00 609.9 12.2% 4.4% (1.9%) 15.6%
Feb-17 GMS Follow-on 29.25 203.3 16.4% 0.2% 17.6% (2.0%)
Feb-17 FBM IPO 14.00 179.2 N/A 10.7% 22.9% 9.5%
Jan-17 UNVR Follow-on 29.00 435.0 10.5% 0.4% 7.5% (29.3%)
Mean: 190.7 9.7% 2.3% 2.6% 4.7%
Median: 169.6 10.0% 0.3% (1.9%) (9.8%)
7
Distribution: Equity Capital Markets Activity
Source: Capital IQ; Company Public Filings; Raymond James Research.
DISTRIBUTION QUARTERLY NEWSLETTER
8
Roofing, Siding & Decking
Automotive Aftermarket
RESEARCH COVERAGE
Distribution Equity Research Overview
Flooring
Cabinetry, Doors & Windows Construction Materials
Marine
Home Furnishings
Gas & Specialty Chemicals
Industrial & MRO
Glass HVAC
SELECT ADVISORY & FINANCING CLIENTS
Distribution Investment Banking Overview
Mergers &
Acquisitions
Public Equity
Offerings & Debt
Offerings
Private
Placements
Restructurings &
Recapitalizations
Valuations &
Fairness Opinions
FULL-SERVICE INVESTMENT BANK
1962
$7.3bn
7,900
126
Founded in 1962 and NYSE listed since 1983
Net revenue in fiscal 2018
Financial advisors managing >$824bn in assets
Consecutive quarters of profitability
Raymond James Overview
RESEARCH TEAM
Electrical
Plumbing
Insulation Lighting
SUBSECTOR EXPERTISE
1
4
“Investment Bank of the Year” (2016)
The Global M&A Network
“Investment Banking Firm of the Year” (2016)
The M&A Advisor Turnaround Awards
“Cross Border Deal of the Year ($500MM-$1B)” (2017)
International M&A Advisor Awards
Ranked 4th among all brokers in the U.S. (2017)
Thomson Reuters Analyst Awards
1
1
Note: Data is as of: 09/30/2019. Criteria for the awards can be found at:
https://www.raymondjames.com/about-us/accolades
Sam Darkatsh, Managing Director
Budd Bugatch, Managing Director
Joshua Wilson, Equity Research Associate Analyst
Paul Ryan, Research Associate
8
Investment Banking
Professionals
+40
Cumulative Years
of Experience
M&A and Capital Markets
Transactions Since 2012
+40
Annual “Who’s Who in
Specialty Distribution” Dinners
9
Closing Success
Rate
>95%
DISTRIBUTION QUARTERLY NEWSLETTER
9
Investment Banking Transaction Credentials
In a sale to
Bookrunner Sell-Side Advisory
2018
Co-managerSell-Side Advisory
2018
&
a portfolio company of
Has been acquired by
a portfolio company of
2019
Has divested
a portfolio company of
2019
$38,859,961
Follow-on Offering
Sell-Side Advisory
Has been acquired by
a portfolio company of
Linen Holdings, LLC
$1,000,000,000
Senior Unsecured
Notes Offering
Co-manager
2012
a portfolio company of
$506,000,000
Follow-on Offering
Co-manager
2012
and
2012
Sell-Side Advisory
Has been acquired by
a portfolio company of
20122012
Has been acquired by
Sell-Side Advisory
$1,275,000,000
Senior Unsecured
Notes Offering
Co-manager
2013
a portfolio company of
2013
$1,101,063,816
Initial Public Offering
Senior Co-manager
a portfolio company of
$98,037,500
Follow-on Offering
Bookrunner
2013
$740,600,000
Follow-on Offering
Lead Co-manager
20132013
Sell-Side Advisory
Has been acquired by
& Company
Management
$26,625,000
Follow-on Offering
Bookrunner
2014
$897,000,000
Follow-on Offering
Senior Co-manager
2014
a portfolio company of
Sell-Side Advisory
2014
Has been acquired by
and
2014
Has been acquired by
Sell-Side Advisory
2014
a portfolio company of
$1,250,000,000
Senior Secured Notes
Offering
Co-manager
Sell-Side Advisory
2015
Have been acquired by
a portfolio company of
and
$1,000,000,000
Senior Unsecured
Notes Offering
Co-manager
20162016
$169,050,000
Initial Public Offering
a portfolio company of
Co-managerSell-Side Advisory
2016
Has been acquired by
Sell-Side Advisory
2016
Has been acquired by
a portfolio company of
Sell-Side Advisory
2016
Has been acquired by
Co-manager
2017
$206,080,000
Initial Public Offering
a portfolio company of
Co-manager
2017
$233,780,625
Follow-on Offering
a portfolio company of
Co-manager
2017
$189,750,000
Follow-on Offering
a portfolio company of
Sell-Side Advisory
2017
a portfolio company of
and
a portfolio company of
Has been acquired by
2017
$345,503,125
Follow-on Offering
Co-manager
Has been acquired by
Sell-Side Advisory
20172018
Sell-Side Advisory
2018
Has been acquired by
a portfolio company of
a portfolio company of
Has been acquired by
2018
Sell-Side Advisory
2019
$950,000,000
Senior Subordinated
Notes Offering
Co-manager
2013
a portfolio company of
2013
Block Trade
760,141 shares
Sole Placement Agent
Sell-Side Advisory
2015
Has been acquired by
a portfolio company of
Buy-Side Advisory
2016
Has acquired
Sell-Side Advisory
2017
Has been acquired by
2018
Has entered into a
definitive agreement to
be acquired by
Sell-Side Advisory
2019
Bookrunner
a portfolio company of
$71,250,000
Follow-on Offering
$315,000,000
Senior Notes Offering
a portfolio company of
$143,400,000
Initial Public Offering
Bookrunner
Co-manager
$80,750,000
Follow-on Offering
a portfolio company of
DISTRIBUTION QUARTERLY NEWSLETTER
10
Russell Green
Managing Director
Distribution
604.659.8323
10
Raymond James Distribution Investment Banking Team
Brian McDermott
Managing Director
Head of Distribution
727.567.5027
Gareth Hughes
Vice President
Distribution
727.567.5979
Christopher Dinu
Senior Associate
Distribution
727.567.6793
Will Schryver
Associate
Distribution
727.567.2136