WHITEFISH, MT / August 5, 2014 / Sterling Consolidated Corp. (OTCQB: STCC), as its name would suggest,
employs a growth strategy primarily focused on acquiring other
businesses. With proper management, this approach can be quicker,
cheaper and far less risky than expanding sales efforts to steal market
share, while also offering instant economies of scale and easier
The company’s consolidation strategy targets the highly fragmented,
multi-billion dollar hydraulic and pneumatic seal market. All candidates
being pursued meet stringent requirements in terms of business model,
earnings, and distribution. Acquisitions completed so far have
demonstrated the management team’s keen ability to find and integrate
reputable companies that can drive value for shareholders.
Yesterday, the company reported
that it is completely switching over to a cloud-based ERP system to
better integrate its existing portfolio of companies while ensuring
future acquisitions can be made seamlessly by eliminating all barriers
from point of factory to the customer directly. As noted by Darren
Derosa, CEO of Sterling, the complete software enterprise solution will
greatly expand the company’s capacity for growth.
Proper infrastructure is absolutely crucial to ensuring smooth
integration of a new company as well as eliminating any bottlenecks that
would restrict future growth. With ongoing negotiations taking place to
acquire additional companies and plans underway to aggressively pursue
other opportunities, Sterling’s latest initiative is a well-timed move.
Successful Acquisition Strategies in Action
Few major companies have made it where they are today without
establishing a solid growth platform and acquiring at least a few
companies along the way. Take for instance diversified industrial
manufacturer Eaton Corporation plc (NYSE: ETN). Since being founded in
1911, the company has acquired a number of businesses and brands to
become the $36 billion company it is today.
Approximately two years ago, Eaton made its largest acquisition to
date with the $13 billion purchase of Cooper Industries plc.
Complementary technologies, a whole new range of products, and an
expanded distribution network are now all being used to accelerate
Eaton’s global growth. Management of the company showed once again how
finding key synergies in an outside entity and then fully capitalizing
on them benefit shareholders, customers, employees and all others
involved. Since the Cooper acquisition, Eaton’s stock price has nearly doubled with a
new all-time high recorded earlier this month.
MSC Industrial Direct Co., Inc. (NYSE: MSM), one of the largest
industrial equipment distributors in the world, is another great
example. The company got its taste for acquisitions in 2006 after the
purchase of J&L Industrial, which at the time was a subsidiary of
Kennametal Inc. (NYSE: KMT). This acquisition introduced significant
cross-selling opportunities as well as considerable cost savings.
A few years after acquiring J&L Industrial, MSC signed a
definitive agreement to buy Rutland Tool and then later announced that
it is making acquisitions a bigger part of its expansion strategy. Since
then the company has also purchased American Tool Supply, ATS
Industrial Supply, and Barnes Distribution North America.
MCS revenues have grown rapidly as a result of these acquisitions,
with strong profitability maintained. In the company’s fiscal Q3 2014
financial report, net sales totaled $720.5 million, an increase of 13.1%
over net sales of $636.9 million in the same quarter a year earlier,
and the company delivered adjusted earnings per share (EPS) toward the
higher end of its earlier guidance. In the press release accompanying
this report, management recognized the importance of its infrastructure
initiatives to improve revenue growth moving forward.
The Opportunity for Sterling in a Multi-billion Market
Hydraulic and pneumatic seals touch nearly every aspect of life via a
plethora of applications, and Sterling has done a phenomenal job
establishing itself as a leading supplier with very consistent
profitability over the last 40 years. Although the industry’s demand is
solid, it is also a highly competitive market with a myriad of players
that often specialize in only certain product types.
The acquisition strategy being utilized by Sterling is opportunistic
in nature and focuses on companies with pending generational changes of
ownership where it can provide investment capital for growth leading to
shareholder value. More specifically, management is targeting prospects
that have demonstrated consistent results, generating up to $5M in
annual revenue with 40% gross margins and 8-10% net margins. The
strategy is already producing revenue growth, with revenue for 2013
growing nearly 5.7% to just over $6M. The company is on track to produce
revenues of $7M in 2014, and plans to hit $25M in the next couple
Sterling’s long-term plan is to create a nationwide distribution
network to provide customers unrivaled delivery times while
simultaneously tapping into additional markets and leveraging the core
strengths of acquired companies. As demonstrated by other companies, a
strategically employed acquisition strategy can be crucial to
maintaining a competitive position and achieving rapid growth.
Rubber and plastics within the industrial goods sector offer ample
opportunity for well-managed companies. Armed with an aggressive
acquisition strategy and decades of experience in the market, Sterling
is ideally positioned to multiply the size of its business many times
over, potentially imitating the success of much larger companies
employing similar acquisition strategies.
Click here to receive free updates on Sterling Consolidated Corp. developments: http://www.tdmfinancial.com/emailassets/stcc/stcc_landing.php
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herein, matters discussed in this release contain forward-looking
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SOURCE: Emerging Growth LLC
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