Anixter Buys Tri-Ed

Anixter Security has been struggling in 2014, with revenue actually declining in the most recent quarter. In particular, Anixter has emphasized that they are doing poorly in the low end of the market.

And who better at the low end than Tri-Ed? (besides ADI)

The big news is that Anixter is buying Tri-Ed [link no longer available].

In this note, we breakdown Tri-Ed's financial details, examine the strategic fit and the financial impact of the deal.

Price / Size

Anixter is paying $420 million for Tri-Ed. That's actually less than Tri-Ed's annual revenue, which was over a half billion ($570 million).

So Tri-Ed distributes a lot of security equipment but their net profitability is poor to non existent, with Anixter reporting an 'adjusted EBITDA' of 6%. Of course, this metric leaves out important things like interest, taxes and depreciation / amortization. Factoring them in, it is unlikely Tri-Ed has any real profits, which is not surprising given how competitive the distribution business is.

Anixter security business is larger than Tri-Ed's. We estimate Anixter's annual revenue for security to be ~$1 billion.

The combination means Anixter is roughly increasing 50% in size.

Auction

Anixter says that there was a competitive 'auction' to buy Tri-Ed that they won.

Tri-Ed's Revenue Breakdown

Anixter's acquisition deck has some numbers on Tri-Ed's revenue:

• Video: 40% / $228 million of Tri-Ed's revenue is from video
• The other 60% of Tri-Ed's revenue is from everything else - access, intrusion, fire, etc. [not segmented]
• US dominant: 78% / $445 million of Tri-Ed revenue is from the US, balance from Canada
• Residential heavy: 40% / $228 million of Tri-Ed's overall revenue is from the residential market, the rest from commercial
• Branch dominant: 74% of sales were made from branches
• Low end dealers majority: 65% of sales are to dealers with just 22% to integrators and 13% to national accounts

And here's the slide from the deck:

Previously Acquired in 2012

Tri-Ed was purchased just over two years ago by holding company Audax Group. Two years prior to that, under ownership of Brazos Equity Partners Tri-Ed was combined with video distributor Northern. 

Recent Purchases

Tri-Ed itself has bolstered its footprint in recent years, most recently purchasing regional security distributor SGI in the southwest US.

Consolidation Security Distribution in the US

The main impact will certainly be in the US, the core market of both parties.

We estimate that combined they will account for ~20% of security product sales in the US. That will help them be more profitable, by increasing their scale. However, they will not be big enough to constrain / shape the market.

Given distribution's ongoing struggles to maintain competitive positioning in the Internet age, this combination will help them increase efficiencies, eliminate duplicative resources.

Complimentary

Anixter and Tri-Ed have traditionally operated on different sides of the market, with Anixter being focused on the high end IT market and Tri-Ed on the low end.

In particularly, Tri-Ed has ~61 regional branch offices throughout the US [link no longer available], with this map overviewing it:

Impact

Beyond allowing Anixter to reach the lower end of the market, this now gives Anixter a retail / local presence throughout the US, which could be an asset even to its larger customers.

ADI is most likely to be impacted / hurt by this move as it creates a mega-competitor for them.