Broadens DSG’s Industrial Technologies’
Focus
Distribution Solutions Group, Inc. (Nasdaq: DSGR) (“DSG” or
the “Company”), a premier specialty distribution company
announced today the Company completed the previously announced
acquisition of 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.
Hisco, founded in 1970, 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. Hisco also offers VMI
and RFID programs with specialized warehousing capabilities.
Acquisition Terms and Financing
In connection with the transaction, DSG paid $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 funded the transaction using a combination of its expanded
amended credit facility and proceeds raised from its equity rights
offering with existing stockholders. For fiscal year ended October
31, 2022, Hisco generated sales in excess of $400 million and
adjusted EBITDA of approximately $29 million(1). DSG expects the
Hisco acquisition to be accretive on an adjusted basis starting in
2023.
Piper Sandler & Co. acted as financial advisor and Mayer
Brown LLP served as legal counsel to DSG on this acquisition.
(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), the
original equipment manufacturer (OEM) and the industrial
technologies markets. DSG was formed through the strategic
combination of Lawson Products, Inc., a leader in MRO distribution
of C-parts; 301 HW Opus Holdings, Inc., conducting business as
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) 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, (3) the Company’s ability to achieve the synergies
contemplated with respect to the Transaction, (4) the failure to
retain key management and employees of Hisco and its subsidiaries,
(5) unfavorable reactions to the Transaction from customers,
competitors, suppliers and employees, and (6) 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-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.
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version on businesswire.com: https://www.businesswire.com/news/home/20230607005884/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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