Could True Value\’s new ownership model be a opportunity for independent distributors and their marketing groups? Many have asked about the future of marketing groups. While IMARK is a cooperative and according to Bill Weisberg a couple of years ago, AD will revert to a cooperative (with the essence of cooperatives being member-owned), perhaps there is another alternative that could give rise to a construction / industrial trades organization? An organization that could unite independents across channels and enable investments into strategies to rival alternative channels and potentially national chains?
Tomorrow\’s Marketing Group Model?
The model may have just been employed by a private equity firm.
True Value, the 4400 retailer buying / marketing group whose members reside in 58 countries, is selling a majority stake to Acon Investments. Acon will own 70% of the companies, members will own 30%.
Some key elements from an article in the Chicago Tribune:
The agreement would give Acon Investments a 70 percent stake in a new True Value operating company, with the remaining 30 percent owned by the member retailers who currently own the cooperative. A portion of Acon’s investment would be used to return 70 percent of retailers’ invested capital, along with promissory notes and dividends, totaling about $229 million, to those retailers.
The concept of a co-op, which I’m very respectful of even though I’ve asked shareholders to move away from that, is that individuals came together as a group to do things they couldn’t do on their own,” said John Hartmann, president and CEO of True Value. “The unfortunate thing is it traps their investment, their equity, in the company.”
Current retailers who will retain a stake in the new True Value can use the returned funds to invest in their business or use as they see fit, something Hartmann thinks can “spawn incredible growth.
Day-to-day operations for current retailers will not change, and they will continue to have access to the True Value brand and services including merchandising and marketing support, he said.
The partnership also will let True Value broaden its brand’s reach by eliminating the requirement that anyone selling True Value products purchase stock.
“The company is now free to sell to anyone who wants to buy from us,” he said.
And here\’s an article in Hardware Retailing with additional information:
\”accelerate the company’s long-term business strategy and secure the future of the independent retailers it serves.
would return approximately $229 million to True Value’s current members who, upon close of the agreement, would receive 70 percent of their invested capital, 100 percent value of their promissory notes and their 2017 patronage dividends. True Value’s board has unanimously approved and recommended the transaction.
If the deal is approved, the remaining 30 percent equity in the co-op held by members would be transitioned into stock holdings in the newly created True Value Co., allowing members to share in the value the company plans to create in the partnership, company sources say. The majority shareholder in the new True Value Co. would then be ACON, which currently owns companies with more than $5 billion in total revenue.
new customers would have no investment requirements to do business with the distributor. Hartmann also pledged that the company would continue to offer access to the True Value brand, giving retailers a unique opportunity to benefit from a national brand without any additional ongoing investment beyond fees to participate in regional and local advertising packages.
And there are True Value members who sell to contractors of all types.
Potential Opportunities of a Diversified Marketing Group:
- Could Acon, or someone similar, aggregate groups of marketing groups / coops from other industries?
- Could they aggregate and then develop a construction / industrial supplies e-marketplace to rival Amazon Business, Grainger, Berkshire\’s proposed eSupply and others while offering local access and expertise?
- Could electrical distributors who want to diversify their product offering for all, or only selected, customers purchase those items via True Value, thereby gaining access to products at some level of a discount. Perhaps an inexpensive way of testing a market or serving a customer\’s needs?
- Could it enable a group\’s members to unless a one-time revenue stream while still participating in future benefits
And consider with True Value ...
Acon is gaining revenue streams funded by manufacturer rebates, retailer service fees (for specific activities) and sharing in the private label financial benefit. Essentially secure revenue streams.
Would you consider joining True Value for access to non-electrical material? Could you see this as a longer-term model?
It may be a far-fetched idea, but private equity firms are known for far-fetched ideas that frequently are profitable.