Orlando, Fla.-based Hughes Supply has acquired Todd Pipe & Supply, Hawthorne, Calif., which Hughes described as “the largest independent wholesale plumbing supplier in the high-growth markets of Southern California and Las Vegas.”

The transaction closed on May 28 and is expected to be immediately accretive to earnings.

According to Hughes, the acquisition of Todd Pipe is clearly aligned with two key elements of its acquisition strategy of (1) expanding its geographic footprint into attractive, high-growth markets, and (2) investing in businesses with leadership market positions, superior operating models and higher profitability, thus improving the company's overall operating portfolio and financial returns. Hughes believes plumbing is an excellent business with great potential and is strategic to its long-term plans. The company has been working on structural changes to improve the growth and returns in the business, and believes the acquisition of Todd Pipe will help accelerate this considerably.

Founded in 1966, Todd Pipe operates eight strategically positioned branch locations throughout Southern California and one branch in Las Vegas, with an estimated 25% share in each of those markets. Todd Pipe had sales of $211 million and operating income of $13 million for the 12 months ended Jan. 31, Hughes said. The company has about 480 employees. According to Hughes, Todd Pipe achieves revenue and profitability per employee above Hughes' and the industry average. Todd Pipe was named Wholesaler of the Year by SUPPLY HOUSE TIMEs in 2002.

“Since our founding, we have taken great pride in setting the standard for excellence in our industry by providing the highest level of reliable service to our industry partners, providing our employees with an opportunity to work in a rewarding and growing environment, and maintaining our reputation of honesty, trust and integrity,” Karl McMillen, owner and chairman of Todd Pipe, said in a statement. “I am pleased that our operating management team will remain, and by joining Hughes Supply, will continue that tradition and move the business forward with a well-respected and established industry leader.”

“Todd Pipe is a highly profitable, exceptionally well-run market leader that will provide us with strong market positions in attractive markets, increased scale, and proven systems and practices,” Tom Morgan, Hughes' president/ CEO, said in a statement. “Its profitability and return on invested capital is well above that of our plumbing segment, reinforcing our strategy of only buying companies that make Hughes better.

“Todd Pipe is a natural match for us, having already adopted many of the systems and practices currently under development at Hughes,” Morgan continued. “It has fully implemented, and is effectively utilizing, the Eclipse Distribution Management System, our distribution platform of choice, and is performing customer profitability analysis, and expanded its service offerings, all of which have resulted in operational and financial excellence.

“Additionally, this acquisition enables us to continue to improve and build upon our core plumbing/HVAC business, providing significant and margin-expanding purchasing leverage and sourcing opportunities. They are an excellent fit with our operations and with our Hughes Supply culture,” Morgan said.

SUPPLY HOUSE TIMES asked Morgan to elaborate further on this acquisition:

SUPPLY HOUSE TIMES: Will Todd Pipe and Standard Wholesale now operate under the name Hughes Supply or will they retain their names?

Tom Morgan, president and CEO, Hughes Supply: At Hughes, all companies we acquire will eventually change their name. However, there are varying transition periods with each acquisition before this takes place. Typically, the acquired company will use a combination of their name with the Hughes name for up to the first year. In the case of Todd Pipe and Standard Wholesale, the plan is for both companies to change their name to Hughes by the beginning of next year.

Q: What makes this a good time for Hughes to be making these substantial acquisitions?

A: There is a window of opportunity that exists right now for acquisitions. The industry is consolidating and there are a lot of company owners currently interested in selling. Our plan involves very strategically pacing ourselves with acquisitions, but the fertile ground for this type of business activity is creating opportunities for us that we must take advantage of.

Q: Will all of the top management remain with the acquired companies or will some Hughes executives assume leadership positions within them?

A: When we acquire companies, we look for those that have a strong management team, will bring us superior returns and expand our geographic footprint. Because the acquired company has usually been managed well, we try to keep that management intact. In the case of Todd Pipe, the founder and chairman, Karl McMillen, has chosen to retire at the end of the transition of his company. His outstanding character and leadership will certainly be missed. But for both Todd and Standard, the day-to-day management should remain the same.

Q: What are some of the structural changes Hughes has been working on to improve the growth and returns in the business (which the acquisition of Todd Pipe will help accelerate)?

A: Hughes has been doing many things to improve our growth and returns. A few of the highlights are:

n Investing in our marketing efforts and driving programs in this area. Marketing is what largely helps us grow organically.

n Creating and promoting incentive programs for both customers and employees. These also drive growth.

n Installing a new computer system to help us grow at a faster pace. Bringing all of Hughes' 12 product groups under one common information system will result in increased cross-selling, standardized operating procedures and improved pricing matrixes across product categories. In addition, the new distribution system will provide management with more detailed and timely reporting of branch sales, expenses and inventory levels.

n Increasing our geographic footprint to broaden our offering. Acquisitions, like Century Supply, Todd Pipe and Standard Wholesale, are namely how we can grow geographically. This growth allows us to leverage other opportunities, such as servicing national accounts and growing into new markets.

Q: Anything else Hughes Supply would like to say to SUPPLY HOUSE TIMES' readers about these acquisitions or its future plans?

A: Acquisition opportunities are plentiful right now and we hope to be the acquirer of choice as our industry continues to consolidate.

Hughes Supply, founded in 1928, is one of the largest diversified wholesale distributors of construction, repair and maintenance-related products in the United States, with nearly 500 locations in 38 states. The company employs about 8,900 associates and its annual revenue exceeds $3.5 billion. Hughes is a Fortune 500 company and was named the No. 2 “Most Admired Company in America” in the Wholesalers: Diversified Industry segment by Fortune magazine. For more information on Hughes, visit http://www.hughessupply.com.