Changes in the Wire / Cable World, Prysmian Wins General Cable

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Prysmian Group Acquires General CableRecent news of Prysmian winning the General Cable sweepstakes brings a close to the auction of the business that was started this summer as both have benefited from higher copper prices … and hopefully that helped General Cable optimize its selling price.

With wire / cable representing a significant percent of a distributor’s business and General Cable being one of the few remaining “large” wire / cable companies in the industry, we reached out to some of our friends in the wire / cable business to get their take on the sale and what it could mean for the business … especially since Prysmian states that the closing may not happen to mid-Q3 2018, giving competitors time to develop their strategies … be they customer-oriented or they target personnel.

The compiled input

Last week’s news spread of the world’s largest wire manufacturer Prysmian Group buying General Cable for cash at $30 dollars a share.  Obviously big news for an industry that continues to demonstrate a need to consolidate for viability and return value to its shareholders.  Many in our industry wonder what the effects of this acquisition mean to the US electrical industry.

For Prysmian / General Cable

Starting with General Cable’s business, as it will need to morph into a Prysmian Group organization.  You can bet on increased operational efficiency driving down expenses and a focus on gaining top line revenue.  All standard expectations for any acquisition.  More important it means improved margin performance for their core business.  Better margin performance is also welcome news for their competitors as it creates (or should create) a more disciplined pricing environment and a new expectation for acceptable margins.

The question will be how long will a stronger pricing discipline remain, when Southwire, Encore, Cerro WireNexans, Belden, Colonial Wire,  or the Asian manufacturers “smell the blood in the water” and pursue General Cable’s $2B overall U.S.business (don’t know what percent is through distribution).  Further, consider when they take action and begin to target a better share position within distributors and the overall market.  The success of this acquisition will depend on who is at the helm of General Cable’s $2B North America business which represents over 50% of General Cable’s total business ($3.8B in 2016 per annual report).  One hypothesis would be an outside CEO/GM with one or two existing General Cable lieutenants.

Impact on Distribution

Turning our attention to electrical distributors, how does this news affect their business?  As mentioned earlier margin inflation will exist because that is a stated goal from Prysmian to their shareholders.  This is not bad news for the distributors because higher acquisition costs typically provide higher margin dollars knowing their sales teams sell at a consistent margin percentage.  Could this consolidation event lead to a more defined “limited distribution” strategy between distributors and General Cable … much as what has been seen with Southwire and Encore in this space?  We have seen it with manufacturers that have a strong specification positions, so it’s reasonable to assume we could see it with a reduced number of manufacturers.  Distributors who invest in their wire and cable stocking capability become more valuable with each consolidation move in the industry.  Interesting that some distributors including Border States, WESCO, Van Meter remain ahead of the market and have already invested in developing wire distribution centers.

Observations

Once this acquisition closes by Q3 2018, Prysmian Group has the potential to be a $14B wire and cable manufacturer and almost double the size of any competitor.  The potential exists for smaller, North America focused, rivals to expand their reach and capture some of Prysmian’s new $2B North America business (i.e. General Cable’s business.).  These competitors could / should to be more strategic and focus on capturing share in certain markets while there is “blood in the water”.  Prysmian will focus on the integration of General Cable into their business model while more nimble competitors can target potential areas of share gain and distribution alliances.  The question will then be “can they hold the business or will the new General Cable come back and try to leverage business from those companies?

The race is on for share gain as we wait to see how Prysmian positions their new US organization.  Will they be able to capture share faster than experiencing share erosion?  Whom will the partner with? Will General Cable retain personnel as relationship is important in this space or will sales staff become nervous (as is typical when a company is acquired) and seek alternatives?  And what, if any, new products / strategies /opportunities will Prysmian bring to General Cable and maybe the industry to further differentiate General Cable?

The next eighteen months will most certainly be an interesting time in the wire and cable business.  In an ever-changing electrical market, the wire and cable industry will continue to be on the daily highlight reel.  No pun intended.

Just some food for thought from some industry friends.  Additionally, Prysmian has a couple of brands in the US, Prysmian and Draka.  Given this, perhaps they’ll keep General Cable as a brand and seek internal synergies.  And as an interesting tidbit, an “old” industry friend, Andy Hemingway, is a VP at Prysmian.  He used to be with American Insulated Wire (AIW, which was owned by Leviton) and Alflex (which was purchased by Southwire).

As a General Cable distributor, what do you think this means for you?

As a General Cable rep, it doesn’t appear to create “rationalization” threat, but could it represent opportunity?

Or, will this be a “ho hum” deal with no change in the competitive landscape?

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