Distribution - Raymond James

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

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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


+15%

$37.6

$40.0


+6%

Divestment of Windows and

Cabinets Business

Separation of Heavy Materials and

Light Materials Segments

Separation of Facilities Maintenance

and C&I Segments


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


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


Industrial BuildingProducts

Electrical

3.4x

2.7x 2.5x

1.0x

Electrical BuildingProducts


Industrial

3.4x

2.7x 2.5x

1.0x

Electrical BuildingProducts


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


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


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.


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.


Feb-19

Nexeo Solutions' Plastics Distribution

Business distributes a chemical and

plastic products in North America.


Jan-19

PAC Industries, Inc. distributes, services,

and supports commercial laundry

equipment.


Nov-18

VantaCore Partners supplies aggregates

for infrastructure, energy, commercial, and

residential markets.


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.


Jun-18

Scott Equipment supplies commercial and

industrial laundry equipment, replacement

parts, and services for government,

institutional, and private clients in Texas.


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.


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.


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.


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%


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


2019

Has divested


2019

$38,859,961

Follow-on Offering

Sell-Side Advisory



Linen Holdings, LLC

$1,000,000,000

Senior Unsecured

Notes Offering

Co-manager

2012


$506,000,000

Follow-on Offering

Co-manager

2012

and

2012

Sell-Side Advisory



20122012


Sell-Side Advisory

$1,275,000,000

Senior Unsecured

Notes Offering

Co-manager

2013


2013

$1,101,063,816

Initial Public Offering

Senior Co-manager


$98,037,500

Follow-on Offering

Bookrunner

2013

$740,600,000

Follow-on Offering

Lead Co-manager

20132013

Sell-Side Advisory


& Company

Management

$26,625,000

Follow-on Offering

Bookrunner

2014

$897,000,000

Follow-on Offering

Senior Co-manager

2014


Sell-Side Advisory

2014


and

2014


Sell-Side Advisory

2014


$1,250,000,000

Senior Secured Notes

Offering

Co-manager

Sell-Side Advisory

2015

Have been acquired by


and

$1,000,000,000

Senior Unsecured

Notes Offering

Co-manager

20162016

$169,050,000



Co-managerSell-Side Advisory

2016


Sell-Side Advisory

2016



Sell-Side Advisory

2016


Co-manager

2017

$206,080,000



Co-manager

2017

$233,780,625

Follow-on Offering


Co-manager

2017

$189,750,000

Follow-on Offering


Sell-Side Advisory

2017


and



2017

$345,503,125

Follow-on Offering

Co-manager


Sell-Side Advisory

20172018

Sell-Side Advisory

2018





2018

Sell-Side Advisory

2019

$950,000,000

Senior Subordinated

Notes Offering

Co-manager

2013


2013

Block Trade

760,141 shares

Sole Placement Agent

Sell-Side Advisory

2015



Buy-Side Advisory

2016

Has acquired

Sell-Side Advisory

2017


2018

Has entered into a

definitive agreement to

be acquired by

Sell-Side Advisory

2019

Bookrunner


$71,250,000

Follow-on Offering

$315,000,000

Senior Notes Offering


$143,400,000


Bookrunner

Co-manager

$80,750,000

Follow-on Offering


https://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=2ahUKEwiQxKvFseXdAhUHnlkKHW6aAWgQjRx6BAgBEAU&url=https://www.hobbydb.com/subjects/aurelius-ag-bank&psig=AOvVaw3PbWanoy6YGc3Cg8n8OPMU&ust=1538488258274999

https://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=2ahUKEwidrInZs-XdAhUkpFkKHTbaDY0QjRx6BAgBEAU&url=http://www.archiexpo.de/soc/mea-water-management-mea-bautechnik-gmbh-93022.html&psig=AOvVaw02pwezspJoWyyKPrMCrd3W&ust=1538488839761985


10

Russell Green

Managing Director

Distribution

604.659.8323

[email protected]

10

Raymond James Distribution Investment Banking Team

Brian McDermott

Managing Director

Head of Distribution

727.567.5027

[email protected]

Gareth Hughes

Vice President

Distribution

727.567.5979

[email protected]

Christopher Dinu

Senior Associate

Distribution

727.567.6793

[email protected]

Will Schryver

Associate

Distribution

727.567.2136

[email protected]

Distribution - Raymond James

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