Mergers & Acquisitions in the Promotional Products Industry

Norm Hullinger and Jeff Lederer discuss whether industry consolidation is merely a big buzzword or a legit trend.

When industry observers mention consolidation, they simply have to point to alphabroder’s mega-merger with Bodek and Rhodes, or Prime Line’s big-time acquisition of Jetline. Norm Hullinger and Jeff Lederer, who helm two of the industry’s most active M&A players, don’t see the trend slowing down.

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Counselor: Consolidation is a big buzzword right now. Do you see it as a legit industry trend?
Norm Hullinger: Absolutely. Both on the distributor side and the supplier side we’re going to see accelerated consolidation mainly as a result of the demands of the marketplace. As competition increases and margins remain under pressure, consolidation is the way for both players of the supply chain to offer the best service possible to the end-user, while still building businesses that are profitable and meet our owners’ and shareholders’ needs.
Jeff Lederer: What happens is the smaller and medium-size suppliers are starting to feel the crunch as the distributors start to consolidate their businesses because they’re concerned about compliance, consistency and inventory. Larger suppliers will buy small and medium suppliers, and that’s just good for business because it helps everyone work even closer together. You’re seeing that on the distributor side too, where they need to be aligned with the service providers that will enable them to compete with other distributors that have more money and more resources. So you’re seeing a much more accelerated version of that happening in the industry.
NH: I was asked to do a presentation to a large distributor, and the question was: “Are distributors better off as a result of consolidation of suppliers?” I know the apparel business well and I did a lot of research on the hard goods side. The results are obvious that distributors are much better off. Ten years ago, there wasn’t one apparel supplier with more than 40,000 unique SKUs in their assortment. We have 104,000 today and there are a few others that are right behind us. No matter where you look – shipping accuracy, error rates, investments in technology – a neutral observer would deduce that this is a good thing on both the hard goods and the apparel side. Distributors have a better service offering today than they ever had.
JL: I agree. With Prime and the consolidation that we’ve done, the acquisitions allowed us to lower our price points, be more competitive and give better service offerings. It’s enhanced the industry and it’s given the distributors a higher level of confidence which has allowed them to consolidate their spend even more.

Counselor: Jeff, when you acquire a company, do you make the decisions in a vacuum or do you see what others are doing and it becomes an arms race?
JL: In the last 10 years we’ve probably done seven acquisitions, and so we’ve typically done this as part of Prime’s DNA. It’s not easy when you merge a company together. If you don’t take the right steps, and you don’t fuse the culture together, it becomes a problem. Other people may see companies doing acquisitions and decide that they want to do it, but we understand it allows us to have more service offerings for distributors and makes us stronger. That’s good for the distributors because we can invest more in inventory and infrastructure.
NH: Jeff said it really well. We look for great partners that we can create an even greater value proposition for our customers. One of the things we talk a lot about is focusing on the customer, and inwardly. There are some business people who think it’s all about the competitor, but we try not to think that way. We just think about what our customers want and need from us, and how we can go about serving those needs.

Counselor: You now see hard good suppliers starting to incorporate apparel. Do you think that’s a good trend for the industry?
NH: It’s a good thing. One constant thing you’ll hear from Jeff and me and any supplier is that we’re all about meeting the customer’s needs, and it’s clear that our customers are looking for their suppliers to gravitate to a one-call-does-it-all solution. To the extent that traditional hard good guys are selling apparel, I think that’s a natural extension of meeting the customer’s needs. That’s the future of this industry.
JL: Apparel is a big growth area for us. The consistency and service offering that we can give to the distributors and the reliability are really key. They don’t have to worry about going to multiple suppliers and can stick with one that they’re comfortable with. We’ve really seen some amazing traction with our distributors who love the fact that we can do 24-hour rush service on printed apparel.

Counselor: I’m not trying to pit you against each other, but with the one PO idea, isn’t one order with Prime one less for alphabroder?
NH: I get that, but this is a big industry and there’s room for an awful lot of suppliers to succeed in a lot of ways. We’re neither surprised nor dismayed by the growth of apparel in the traditional hard good space because we support quite a bit of it. As long as we’re all meeting our customers’ needs and this industry grows, there’s a lot of room for a lot of people to do very well.
JL: And I would agree. Norm and I actually have talked in the past about us buying some of their product. More suppliers working together are only good for the distributor and the industry, and keeping your close relationship with different suppliers is a positive all around. This industry is unique in that we can have this frank discussions and openness with each other.