Premier Farnell PLC said it has agreed to be purchased by a division of Swiss industrial components distributor Dätwyler Group AG for approximately $867 million, creating a bigger player in the European components distribution industry while putting an end to the saga of one of Britain’s biggest electronics distributors.
The transaction is expected to set Premier Farnell on a different operational trajectory after years of lackluster performance and continuing struggle by the management to improve the company’s competitiveness in a harsh operating environment dominated by bigger players and the shift of production to the Far East. By agreeing to the offer, Premier Farnell’s board of directors appears to be giving up on engineering the turnaround needed by the company internally and hoping for an external growth spark.
“This forward-looking strategy is necessary to keep up with changing market dynamics,” Dätwyler said in a statement to Premier Farnell employees. “In the recent past, the size of a company has become an increasingly important differentiator within the distribution business and the internet has intensified this trend. The requirements of customers and authorities are constantly increasing, leading to rising costs along the entire value chain. Examples include a procurement organization for quality assurance in Asia, modern warehousing and ICT systems for fast delivery, or a trend-setting web shop for a unique shopping experience to bind customers to our company. Our most important goal is to have satisfied and enthusiastic customers.”
The deal would unite Dätwyler’s Technical Components (DTC) division, which reported revenue of about $477 million in 2015, and Premier Farnell with sales of $1.3 billion in its latest fiscal year. Both businesses are operating in a tough market environment and executives believe combining their operations would help slash costs, add to sales leverage and improve their competitive positions.
In the U.S., Premier Farnell operates under the Newark element14 brand name.
Neil Harrison, head of Dätwyler’s Technical Components (DTC) division, said the purchase of Premier Farnell would expand the merged company’s addressable market to 80 percent to 85 percent of the highly fragmented electronics components distribution market and immediately make them “one of the biggest fish in a very big pond.”
Dätwyler specifically wants to increase its presence on the web and in e-commerce. To be successful in the digital marketplace, Harrison said, “You need to generate economies of scale. Our customers want a one-stop shopping experience — and they would like to have all of their purchases ideally through one or two suppliers.” Additionally, he said, an e-commerce leader has to have an international presence; provide a wide variety of components; and deliver accurate orders on time. Suppliers, he added, are looking to narrow down their distribution roster. “We are a trading company -- we buy and sell products and add value through the transaction. Our suppliers are increasingly looking for and will support and indeed favor those distributors that can seed the market with their new technology."
Harrison said when he joined DTC 18 months ago it was clear the unit had some operational challenges that could be addressed by a revamped focus on the basics of the distribution business. The changes implemented at Dätwyler so far include new products introduced in October, the launch of a private brand and the expansion of the customer base. Dätwyler lists three brand names: Distrelec / Elfa Distrelec, Reichelt and Nedis on its website. Harrison said Dätwyler sees opportunity for cross-selling products across the merged distribution companies.
Premier Farnell had also been working on a turnaround strategy for years and has only recently completed the installation of a new management team headed by CEO Jos Opdeweegh who joined the Leeds, U.K.-based company in April. The company also today announced the departure of Mark Whiteling, formerly acting CEO and deputy CEO under Opdeweegh. He had also been CFO of the company. In recent months, Premier Farnell named Helen Willis interim CFO and added new folks in senior sales and marketing positions in its branches in the U.S. and in the U.K.
As part of Premier Farnell’s multi-year reorganization prior to the Dätwyler transaction, the company in February announced the sale of Akron Brass Holding Corp., one of its U.S. units, to IDEX Corp. for $224.2 million. The sale was part of the company’s plan to refocus purely on its core electronics components distribution business, according to company executives.
“Following the completion of the operational review and the conclusions announced in December 2015, the sale of Akron Brass marks the next important milestone in the strategic refocusing of Premier Farnell,” Whiteling said in a statement announcing the transaction earlier this year. “The review confirmed that there are significant opportunities to improve the operational and financial performance of Premier Farnell. The sale of Akron Brass will enable us to focus on executing the initiatives identified as part of our review in order to restore growth in profitability in FY17.”
Premier Farnell’s stock price jumped more than 50 percent on the news of the planned sale of the company to Dätwyler, which plans to fold the business into its U.K. operation. The deal is expected to result in the creation of a more competitive enterprise serving both the electronics design engineering market – Premier Farnell’s core sector – as well as the maintenance, repair and operations (MRO) industry, a segment where Dätwyler has a stronger presence, according to Ulrich Graf, chairman of the Dätwyler group.
“By combining forces, we expect to significantly increase our competitiveness and extend our product range, facilitating a one-stop-shopping experience for our wide range of customers from a multitude of industries,” Graf said in a statement.
Under the terms of the transaction Dätwyler will pay $867 million, or £615 million, for all the outstanding shares of Premier Farnell. The offer represents a premium of 51 percent to Premier Farnell’s stock price ahead of the announcement of the transaction. The combined companies are expected to have revenue of approximately $2.6 billon (2.5 billion Swiss Francs) with the electronics components business accounting for a majority, or 1.8 billion Swiss Francs.
Both companies said in a statement that they expect to squeeze cost-savings from the transaction and see opportunities to expand their markets together. By teaming up, the two enterprises can further reduce costs, share administrative facilities and cross-sell products to existing customers. These savings and operational collaborations are expected to boost declining margins at Premier Farnell.
The U.K. company in a separate trading update today said fiscal first 2017 quarter sales increased slightly to £247.2 million, up from £240.5 million, in the comparable year-ago quarter. Sales improvements reported for the Asia-Pacific region (up 26 percent) were offset by relatively weaker performance in Europe (up 1.5 percent) and continuing pressures in the Americas where revenue fell 10 percent, during the quarter, according to the company.
“The sales trends of 2015/16 continued into the first quarter of this financial year, with strength in Continental Europe and Asia Pacific and difficult trading conditions in North America and UK,” Premier Farnell CEO Opdeweegh said in the trading update. “We remain on track to make progress in this financial year, as we increase our operational efficiency and relevance to customers, and we implement the outcomes of our operational review.”
In fiscal 2016, Premier Farnell reported sales from continuing operations of £903.9 million, up from £886.6 million for fiscal 2015. Gross profit margins fell to 34 percent in fiscal 2016 from 36.5 percent in fiscal 2015, the company said. Total sales in fiscal 2016 were £982.7, up from £960.1 million in fiscal 2015, and £968 million in fiscal 2014.