Broadens DSG’s Industrial Technologies’ Focus
Conference Call Today at 11am ET; Acquisition-Related Materials on
Website
Distribution Solutions Group, Inc. (Nasdaq: DSGR) (“DSG” or
the “Company”), a premier specialty distribution company
announced today that it reached a definitive agreement to acquire
HIS Company, Inc., (“Hisco”), a leading distributor of specialty
products serving high growth industrial technology applications. In
connection with this transaction, DSG will combine the operations
of TestEquity and Hisco, creating one of the largest suppliers
serving the electronics design, production, and repair industries.
For fiscal year ended October 31, 2022, Hisco generated sales in
excess of $400 million and adjusted EBITDA of approximately $29
million.(1)
Hisco, an employee-owned company, operates in 38 locations
across North America, including its Precision Converting facilities
that provide value-added fabrication and its Adhesive Materials
Group that provides an array of custom repackaging solutions. Hisco
offers customers a broad range of products, including adhesives,
chemicals and tapes, as well as specialty materials such as
electrostatic discharge, thermal management materials and static
shielding bags. Hisco also offers vendor-managed inventory and RFID
programs with specialized warehousing for chemical management,
logistics services and cold storage.
Bryan King, Chief Executive Officer and Chairman of the Board of
DSG, said, “We are very excited to announce our plans for this
strategic acquisition which we expect to be accretive on an
adjusted basis starting in 2023. Hisco is a strong business with
niche market leadership positions, a strong growth and return
profile, and an outstanding management team that we believe will
thrive as part of DSG. The combination of TestEquity and Hisco will
take a “best-of-both” approach in terms of people, capabilities,
and strategies. While our industrial technologies focus will
benefit most from this combination, we are also excited about how
Hisco is expected to expand DSG’s commercial opportunities and
durability, enhancing our organic growth rates and providing
further scale to the overall DSG platform.”
“The addition of Hisco will meaningfully expand the product and
service offerings at TestEquity, as well as all of our operating
businesses under DSG,” said Russ Frazee, Chief Executive Officer of
TestEquity. “With the addition of Hisco's product lines and
value-added capabilities, we are able to offer customers a more
comprehensive solution for their electronic assembly requirements.
We look forward to working with the Hisco team to bring increased
value and offerings to our combined customers, suppliers and
stakeholders.”
“This transaction is the result of decades of hard work on the
behalf of our employee owners,” said Bob Dill, Hisco’s Chief
Executive Officer. “It’s also a recognition of Hisco’s deep
industry relationships, innovative customer-centric solutions, and
comprehensive capabilities that Hisco has developed over the course
of its history. Looking ahead, the combination of TestEquity and
Hisco will allow the combined business to build on our
complementary capabilities and further enhance the value that
Hisco, TestEquity and the DSG family of companies provide to its
customers and partners.”
Acquisition Terms and Financing
In connection with the transaction, DSG has agreed to pay $269.1
million at closing, with a potential additional earn-out payment of
up to $12.6 million, subject to Hisco achieving certain performance
targets. DSG will also pay $37.5 million in cash or DSG common
stock in retention bonuses to certain Hisco employees that remain
employed with Hisco or its affiliates for twelve or more months
after the closing of the transaction.
DSG anticipates funding the transaction using a combination of
its expanded committed credit facility and approximately $100
million of equity to be raised in a rights offering to existing
stockholders. Luther King Capital Management and its affiliates
(“LKCM”) currently own approximately 77% of DSG’s outstanding stock
and have indicated an intention to fully subscribe for their pro
rata portion in the rights offering, as well as for their pro rata
portion of any rights remaining unsubscribed at the completion of
the subscription period. The Company anticipates that after giving
effect to this combination its net debt leverage on adjusted EBITDA
will be between 3.25x to 3.50x at the time of closing.
The transaction is expected to close in the second quarter of
2023, subject to regulatory and customary closing conditions.
Conference Call to be Held Today, Friday, March 31st at 11:00
AM ET
A conference call to discuss this transaction has been scheduled
for today at 11:00 AM ET. Call in information can be found below.
Webcast information and conference call materials will be available
in the Investors section of DSG’s website at
https://distributionsolutionsgroup.com/investor-relations/.
Today’s call-in information: Toll
Free: 888-506-0062 International: 973-528-0011 Participant Access
Code: 641202
Replay of the call will be available until Friday, April 14,
2023, by calling 1-877-481-4010, replay code 47947.
(1) See GAAP to non-GAAP reconciliation attached.
About Distribution Solutions Group,
Inc.
Distribution Solutions Group (“DSG”) is a premier specialty
distribution company providing high touch, value-added distribution
solutions to the maintenance, repair & operations (MRO),
original equipment manufacturer (OEM) and the industrial
technologies markets. DSG was formed through the strategic
combination of Lawson Products, Inc. (“Lawson Products”), a leader
in MRO distribution of C-parts; 301 HW Opus Holdings, Inc.,
conducting business as Gexpro Services (“Gexpro Services”), a
leading global supply chain services provider to manufacturing
customers; and TestEquity Acquisition, LLC (“TestEquity”), a leader
in electronic test & measurement solutions.
Through its collective businesses, DSG is dedicated to helping
customers lower their total cost of operation by increasing
productivity and efficiency with the right products, expert
technical support and fast, reliable delivery to be a one-stop
solution provider. DSG serves 110,000 customers in several diverse
end markets supported by more than 3,100 dedicated employees and
strong vendor partnerships. DSG ships from strategically located
distribution and service centers to customers in North America,
Europe, Asia, South America and the Middle East.
For more information on Distribution Solutions Group please
visit www.distributionsolutionsgroup.com.
About TestEquity
TestEquity® is a leading distributor focused on providing the
largest and highest quality selection of test and measurement
equipment and solutions, electronic production supplies, and tool
kits from its leading manufacturer partners supporting the
technology, aerospace, defense, automotive, electronics, education,
and medical industries. TestEquity also designs a full line of the
industry’s highest-quality environmental test chambers. Serving
electronic design and test engineers as well as maintenance
technicians, industrial manufacturing assembly and the
telecommunication repair community, TestEquity features more than
250,000 products from over 700 manufacturer brands. TestEquity
continues to benefit from ubiquitous electronification of all types
of products across most industries including IOT, EV, and 5G. For
more information, visit www.testequity.com.
About Hisco
For over 50 years, employee-owned Hisco has been a leader in
supply chain solutions. Hisco is a specialty distribution company
serving the electronic assembly, aerospace and defense, medical and
other industrial markets. Hisco delivers documented value creation
to its nearly 10,000 customers through quality products, process
solutions and cost savings. Hisco also offers specialized
warehousing for cold storage and vendor managed inventory services.
For more information visit www.hisco.com.
Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as
amended (the “Securities Act”), Section 21E of the Securities
Exchange Act of 1934, as amended, and the “safe harbor” provisions
under the Private Securities Litigation Reform Act of 1995, that
involve risks and uncertainties. The terms “aim,” “anticipate,”
“believe,” “contemplates,” “continues,” “could,” “ensure,”
“estimate,” “expect,” “forecasts,” “if,” “intend,” “likely,” “may,”
“might,” “objective,” “outlook,” “plan,” “positioned,” “potential,”
“predict,” “probable,” “project,” “shall,” “should,” “strategy,”
“will,” “would,” and other words and terms of similar meaning and
expression are intended to identify forward-looking statements.
Forward-looking statements do not relate to historical or
current facts and are only predictions and reflect the views of the
Company as of the date they are made with respect to future events
and financial performance. These statements are not guarantees of
future performance and involve risks, uncertainties and assumptions
that are difficult to predict. The Company gives no assurance that
any goal set forth in forward-looking statements can be achieved
and cautions readers not to place undue reliance on such
statements, which speak only as of the date made. These statements
are based on the Company’s management’s current expectations,
intentions or beliefs and are subject to assumptions and
uncertainties that could cause actual results to differ materially
from those described in the forward-looking statements. Factors
that could cause or contribute to such differences or that might
otherwise impact the Company’s business, financial condition and
results of operations include (1) unanticipated difficulties or
expenditures relating to the acquisition of Hisco by the Company
(the “Transaction”), (2) the failure to complete the Transaction on
the proposed terms or anticipated timeline, (3) the inability to
obtain, or delays in obtaining, required approvals under applicable
antitrust legislation, (4) the occurrence of any event, change or
other circumstances that could give rise to the termination of the
definitive agreement to acquire Hisco, (5) difficulties integrating
the business operations of the Company and Hisco, which may result
in the combined company not operating as effectively and
efficiently as expected, (6) the Company’s ability to achieve the
synergies contemplated with respect to the Transaction, (7) the
failure to retain key management and employees of Hisco and its
subsidiaries, (8) unfavorable reactions to the Transaction from
customers, competitors, suppliers and employees, and (9) the
possibility that certain assumptions with respect to Hisco’s
business or the Transaction could prove to be inaccurate. In
addition to the factors identified herein, certain risks associated
with the Company’s business are also discussed from time to time in
the reports the Company files with the U.S. Securities and Exchange
Commission. The information contained in this press release is as
of the date indicated above. The Company assumes no obligation to
update any forward-looking statements contained in this press
release as a result of new information or future events or
developments.
Non-Solicitation
This press release shall not constitute an offer to sell or the
solicitation of an offer to buy any securities, nor shall there be
any sale of securities in any states or jurisdictions in which such
offer, solicitation, or sale would be unlawful prior to
registration or qualification under the securities laws of any such
jurisdiction. No offering of securities shall be made except by
means of a prospectus meeting the requirements of Section 10 of the
Securities Act or an exemption therefrom.
Non-GAAP Financial Measures; SEC Regulation G GAAP
Reconciliations
Some of the financial information and data contained in this
press release relating to Hisco, such as revenue and Adjusted
EBITDA, have not been prepared in accordance with GAAP. DSG
believes that these non-GAAP financial measures provide useful
information to management and investors regarding certain financial
and business trends relating to Hisco’s financial condition and
results of operations. DSG does not consider non-GAAP measures an
alternative to financial measures determined in accordance with
GAAP. The principal limitation of these non-GAAP financial measures
is they may exclude significant expense and income items that are
required by GAAP to be recognized in DSG’s consolidated financial
statements. In addition, they reflect the exercise of management’s
judgment about which expense and income items are excluded or
included in determining these non-GAAP financial measures. Non-GAAP
financial measures should not be relied upon, in whole or part, in
evaluating the financial condition, results of operations or future
prospects of DSG, Hisco or the combined company. Non-GAAP financial
measures should be viewed in addition to, and not as an alternative
for, DSG’s reported results prepared in accordance with GAAP. A
reconciliation of the non-GAAP financial measures to the nearest
comparable GAAP financial measures is contained in this press
release.
Reconciliation of GAAP Revenue and GAAP
Operating Income to Non-GAAP Adjusted Revenue and Non-GAAP Adjusted
EBITDA (Dollars in thousands)
Distribution Solutions
Group
Hisco
Year Ended Year Ended 12/31/2022
10/31/2022 GAAP Revenue
$
1,151,422
GAAP Revenue
$
403,675
Pre-Merger Revenue (1)
117,877
Adjusted Revenue
$
1,269,299
GAAP Operating Income
$
41,786
GAAP Operating Income
$
9,101
Pre-Merger Operating Income (1)
12,076
Adjusted Operating Income
$
53,862
Depreciation and amortization
47,275
Depreciation and amortization
7,306
Adjustments:
Adjustments: Merger/integration costs (2)
15,633
Merger/integration costs (2)
-
Stock-based compensation (3)
(6,147
)
Stock-based compensation (9)
6,872
Severance costs (4)
3,422
Severance costs (4)
-
Acquisition related costs (5)
2,782
Acquisition related costs (5)
873
Inventory net realizable value adj. (6)
1,737
Inventory net realizable value adj. (6)
4,353
Inventory step-up (7)
2,867
Inventory step-up (7)
-
Other non-recurring (8)
1,597
Other non-recurring (8)
-
Adjusted EBITDA
$
123,028
Adjusted EBITDA
$
28,505
(1) Lawson Products revenue and operating
income for the three months ended March 31, 2022, were not included
in the Company's GAAP operating results under reverse merger
acquisition accounting. (2) Merger transaction costs related
to the negotiation, review and execution of the merger agreements
relating to the business combination of Lawson Products, TestEquity
and Gexpro Services and subsequent integration costs. (3)
Expense primarily for stock-based compensation (benefit), of which
a portion varies with the Company’s stock price. (4)
Includes severance expense for actions taken, not related to a
formal restructuring plan. (5) Expense for acquisition
related costs, unrelated to the business combination of Lawson
Products, TestEquity and Gexpro Services. (6) Inventory net
realizable value adjustment recorded to reduce inventory related to
discontinued products where the anticipated net realizable value
was lower than the cost reflected in the Company's records.
(7) Inventory fair value step-up adjustments resulting from the
reverse merger acquisition accounting for Lawson Products and
acquisition accounting for additional acquisitions completed by
Gexpro Services. (8) Other non-recurring costs consists of
sales force optimization and other non-recurring items. (9)
Compensation expense for the fair market value of shares released
and contributed to the Company's Employee Stock Ownership Plan.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230330005814/en/
Company Contact: Distribution Solutions Group, Inc.
Ronald J. Knutson Executive Vice President and Chief Financial
Officer 773-304-5665 Investor Relations Contacts: Three Part
Advisors, LLC Steven Hooser or Sandy Martin 214-872-2710
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