Industrial Supplier Implements Scalable IT Infrastructure as Part of Aggressive Acquisition Strategy

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Industrial Supplier Implements Scalable IT Infrastructure as Part of Aggressive Acquisition Strategy

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 financing.

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 years.

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.

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SOURCE: Emerging Growth LLC