Connections key for SBP Holdings as M&A heats back up

DALLAS—For years, SBP Holdings L.P. has expanded its footprint of industrial distribution sites through a series of mergers and acquisitions.

Going through the COVID-19 pandemic, the pace of those purchases slowed markedly for a variety of reasons, but now the holding company is back to closing deals as business remains strong in both its Singer Hose and Rubber Division as well as its Fluid Power and Automation Division.

SBP, in fact, had a bookend August, with its Fluid Power unit closing a deal Aug. 1 to buy Mattson Distributing Co. Inc. in Boise, Idaho, and the Singer side finalizing its purchase of Catawba Industrial Rubber Co. Inc. and its subsidiary, Coastal Hose and Rubber Inc., on the final day of the month.

The Catawba deal brought two locations in North Carolina, owned and operated by husband-and-wife team Marvin (Skip) and Pam Bruce since 1999. The distributor supplies industrial hose, specialty gasket and industrial belting goods, serving such key markets as general industrial, construction, chemical and resale.

Established in 1957, Mattson Distributing sells and services a full line of industrial pressure washing equipment within several key markets, including agriculture, construction, mobile equipment and in-plant systems.

With the two acquisitions, SBP increased its North American footprint to about 78 locations and more than 1,000 employees.

Even before these deals were announced, SBP had been talking to numerous business owners considering an exit and, for them, it's all about the timing, according to Sam Petillo, president of the Singer Hose and Rubber Division.

"There's no doubt the pandemic and (potential) recession have expedited their exit plans," he said. "Our industry is riding a high right now, riding a huge wave and volume of dollars. These owners see that, and they don't want to live through another pandemic or recession.

"With news of a potential increase in the capital gains tax and the fact that the younger generations just aren't interested in taking over a rubber business, there are a lot of reasons for an owner to consider an exit right now."

Petillo said he expects to see a lot more industry consolidation in the future, especially in the fluid power space.

"In general, there's a lot of dry powder out there to fuel more acquisitions, both by strategic and private equity firms," he said. "There's a lot of competition in our space, and a lot of money floating out there."

Scott Wojciak, who joined SBP in May as president of the Fluid Power and Automation Division, said absolutely there is an increasing number of companies that are ready to sell their businesses.

"They see this as a timing issue," he said. "If they can get out now, they get some cash, they avoid the capital gains, and they have a lot of other companies looking to purchase them now."

With the good return on acquisitions in the fluid power market, he said even rising interest rates likely won't do much to slow activities.

"And some of the bigger strategics have cash," Wojciak said. "The activity is unbelievable. One after another. There will be changes in the market, not just from us. I think you'll see this from everybody. It's going to look different in 12 months, that's for sure."

Petillo said SBP looks at profitable, well-run companies with young talent who can manage the company moving forward when considering potential acquisitions. But they avoid companies that focus on coal, and oil and gas. The markets remain strong, especially oil and gas, but other factors will impact the sectors in future years.

"Certainly we know the long-term impact of global warming and the current administration's tactics are going to have on the industry, but it will still remain strong for a very long time," Petillo said. "Fossil fuels will still be around for a very long time. We can't convert to electric overnight, but we certainly see the handwriting on the wall.

"And we just don't have the same stomach to ride the highs and lows of that industry. We want stability in other diversified markets."

The Hose and Rubber Division has seen significant recovery for all of its industry sectors for over a year, since coming out of the slowdown at the start of the pandemic. For its fiscal year that ended in May, Petillo said growth in both sales and profits were "astounding."

"Construction has been very strong for us, and we expect it to be strong going forward, considering the infrastructure funding that will be coming through," he said.

The aggregate industry, which relies on construction, also has been a bright spot, particularly for the firm's conveyor belt companies in the Mid-Atlantic and up to the Northeast regions. Other sectors that have remained strong include petrochemicals, general MRO business, transportation and industrial machinery, along with food and beverage.

Only the military and marine business has been slow because of a lack of funding and project work related to new ship builds and maintenance, according to Petillo.

The early February sale of Bishop Lifting Products—formerly the third vertical within SBP's business plan—to Altamont Capital Partners allowed the holding company to focus on the hose, rubber and fluid power business.

"The sale helped us right-size our end market exposure away from oil and gas," Petillo said, "and become more balanced with the overall industrial segment. The sale also freed up a lot of cash for us to focus more on acquisitions in both existing divisions under SBP Holdings."

Bringing Wojciak on board to head the Fluid Power and Automation business brought someone with nearly three decades of experience in the market to help accelerate acquisition activities and organic growth on that side of SBP.

He most recently was central area director for Kaman Fluid Power within Motion Industries, and also was part of BW Rogers as vice president of sales before it was acquired by Kaman.

During his career, Wojciak has worked for all types of owners—private equity, privately owned firms and publicly held ones—and sees the good and bad with all of them. He was an electrical engineer out of college, and built his career on fluid power hydraulic systems, gaining an understanding of markets and vendors in the process.

He said he was attracted to SBP Holdings, which is smaller than his prior employers, because of the M&A opportunities.

"That got me interested, but the reason I made the move was the people. Everybody I had met before I was hired and now after are just good people," Wojciak said. "I love the blue collar atmosphere and the hard work, and the 'let's help each other and win together' attitude. It's been refreshing."

The Fluid Power and Automation Division offers a complete source of innovative products, technical expertise and a well-stocked inventory. A big piece of the unit's business is focused on its engineering, service and repair capabilities.

There is overlap with the Singer Hose and Rubber side of SBP, and Petillo said the service component is a good add-on for Singer's capabilities in the hydraulic space.

"We sell hydraulic hose and fittings, and have gotten into some cylinders and hydraulic repair, but nowhere close to the level Dakota brings to the table," he said. "We do share vendors. One of their largest vendors is one of our largest. We also share markets and products, and management is closely aligned."

There have been some recent success with cross-selling between the two platforms, where the units can look to bring all the products to the customer, not just rubber or fluid power items as separate units. "It's nice for Singer to have at their fingertips the availability of pumps and motors, and cylinder and hydraulic repair, if that is what the customers are craving," Petillo said.

SBP is moving forward with cross-training for its sales leaders, and that will be particularly important as acquisitions bring more overlap in the Singer and Fluid Power geographic footprints.

But that doesn't mean the distributor group will look to be a catalog house where all sales people are expected to be experts in everything.

"If someone is strong in one area or the other, there is no expectation to make them a fluid power sales person going forward," Petillo said. "We just want everyone to be aware of all the products in our baskets so, when they are making sales calls, they know. Or they can reach across to someone in fluid power if the customers needs a product or problem solved in their side of the business."

Wojciak said the key to taking advantage of opportunities in synergies across the two groups is to identify every product and service it can offer to existing customers. He added that it's generally cheaper to boost market share from existing customers than it is to bring on board new customers. The problem is that most sales people will sell what they're comfortable with, as they may be worried about not understanding the new products being introduced to them.

"Where we're trying to do a better job is to take talent we have in the organization and leverage it across accounts, which looks great on paper but is very hard to execute," Wojciak said. "Even if we can execute that slightly we can get a nice bump if we get it to the right customers.

"If we get it to the right top customers where we already have a relationship, we should be able to leverage that. We just need the technical side to articulate why the customers should buy that product from us."