Retail update: Industrial

Stealth Group completes United Tools acquisition

With a market capitalisation of $12 million, Perth-based distribution group Stealth Global Holdings has executed a number of acquisitions in recent years, delivered organic growth and is refocusing on the Australia market

Stealth announced it has now acquired 100% of the shares in United Tools Limited with its network of stores around Australia. Group managing director Mike Arnold said in a statement:

...The completion of this acquisition is an exciting milestone for Stealth and United Tools, doubling the size of our store network to 66 stores Australia-wide, and creating one of Australia's largest one-stop distribution groups combining company owned and independent retailer assets.
We see opportunities to strengthen the competitive position of the Stealth Group and its independent retail partners, by investing in expanding product ranges, strengthening the supply chain, deeper supplier engagement and enhancing the customer experience through an interconnected distribution portfolio.

On completion, United Tools held $1.4 million of net cash which Stealth will use for working capital, reduce its debt and invest for the future.

In a story that first appeared on investor website ShareCafe, Stealth Global is described as both a business-to-business (B2B) distributor - 87% of its sales are to businesses - as well as business-to-customer (B2C), through its portfolio of core brands:

  • Heatley's Safety & Industrial (acquired October 2018)
  • Industrial Supply Group (acquired May 2019)
  • C&L Tool Centre (acquired December 2020)
  • Skipper Transport Parts (acquired August 2021)
  • United Tools (acquired March 2022)
  • Trade Counter Direct (expected in the second half of 2022)
  • Mr Arnold told ShareCafe that the United Tools and Skipper Transport Parts acquisitions are "major steps in building a larger, more relevant, and more diversified business."

    Between them, the two businesses brought more than 600,000 new products, over 2,500 customers and over 1,400 suppliers into the portfolio. He said:

    Our whole M&A blueprint has been all about building more muscle with deals that add big value by having a larger consolidated group. It's all about scale and leverage, and expansion into newer markets and geographies.
    For example, United Tools doubled our store network, from 33 to 66. C&L has given us an east coast point of distribution, and has been a burster on many fronts - its net profit is up by about 35% since we bought it...

    BSA Brands (UK)

    In February, Stealth Global sold its 50% stake in in BSA Brands UK - a 50/50 joint venture established in March 2019 between Stealth and Bisley Workwear in the UK. This follows the sale of Bisley Workwear in December 2021 to US-based Protective Industrial Products (PIP), a global personal protective equipment (PPE) supplier.

    Mr Arnold said Stealth realised "significant value" from the transaction, strengthening its capital position while retaining its partnership with Bisley and the PIP group as a major supplier partner to Stealth in Australia". (The sale of the BSA Brands stake brings the closure of Stealth's operations international operations in the United Kingdom and Africa.)

    Stealth said it received AUD1.65million in cash after the FX (foreign exchange) conversion from GBP to AUD. The balance of AUD300,000 will be received over the next 12 months.

    Protective Industrial Products buys Bisley Workwear - HNN Flash #76, December 2021

    Strategic plans

    On its website, the company refers to itself as a "pure-play distributor" for industrial MRO - maintenance, repair, operations - and safety supplies and solutions. Mr Arnold told ShareCafe:

    We want to be the biggest and best supplier of everyday products, for every workplace, at the best prices. We're the only company, as a single source, that can provide the depth and breadth of products that we can.

    Mr Arnold said Stealth Global extends across the end-to-end supply chain, covering business, trade, retail, service and the specialist wholesale sector, serving customers of all sizes from a broad collection of industries including commercial, mining, resources, industrial, government, transport, automotive, agriculture, building, construction, manufacturing, engineering, trade and retail.

    We have the most comprehensive product range, from tools to hardware to workwear to truck parts, in our markets. It's safety, industrial, truck & automotive, and workplace consumable products, selling into highly diversified end-markets - that's why we say, 'every workplace'.
    We want to transform the delivery of industrial MRO products and solutions in Australia as the market leader, and the company of choice for customers and suppliers. Our mission is to connect thousands of our products to customers of all types and sizes in every industry - to get our products and solutions into every workplace, every industry and every home.

    There are more than one million of these products, supplied by 2,500 suppliers, and at present, Stealth Global distributes these to 5,500 business customers and 34,000 retail customers. It uses a wide variety of sales channels, including its own sales team serving key accounts, in-store, on-site, online, delivery options and click-and-collect.

    Mr Arnold believes this is an "omnichannel" approach, in which the multiple channels are integrated to create a seamless experience for the customer, who can pick-up on one channel where they left-off on another. Within that, Mr Arnold said Stealth is "investing heavily" in expanding its online channel.

    With the current group structure, Mr Arnold said the business model is positioned to capitalise on the economies of scale and reach.

    The business model is similar to the Metcash principle of how it works with IGA and Mitre 10: you don't just supply to them, you invest with them and evolve your business to work directly with them, whether they're company-owned or independent.
    We've now got the depth and breadth in terms of ability to support the independents, but also grow with our company operations, that allows us to be able to provide a genuine alternative to the market. We're finding that a lot of organisations like dealing with us because we're agile, we're nimble in our decision-making, we're also very keen to invest with our customers, and in doing that we're seeing the benefits of upside...
    Our market is very large - we estimate that MRO is a $40 billion addressable market - but it's very fragmented. We are the largest player with about 4%. But we've positioned ourselves between the majors - Wesfarmers and Metcash - and the minors. We think there will be more consolidation, and that's good for companies like us who are on fast-growth pathways.

    Trading performance from continuing operations in the December 2021 half-year saw record half-year revenue of $44.3 million, up 55%, with online sales increasing ten-fold to $2.2 million, representing 5% of group sales (and 9% of retail sales). Underlying EBITDA (earnings before interest, tax, depreciation and amortisation) more than tripled, to $1.73 million. Mr Arnold said:

    We're doing $100 million run-rate in sales now, up from $24 million in September 2018. It's interesting, we expect to see a bit of inflation, there have been a lot of supply chain bottlenecks, but that's been good for us because the products that we sell are absolutely aligned to the types of industries where that's being felt.
    As supply chains become slower, we need to make sure that we have the right stock in the right locations at the right time. So, our inventory cost may go up, however, based on that demand, we also see that our sales activity will go up if we have the product that's available. We've made a lot of investments recently, they've hugely boosted our scale, but the benefits of that are yet to materialise. We're pretty excited about the opportunity in front of us.


    Stealth Global buys United Tools Limited - HNN Flash #77, January 2022
  • Sources: Stealth Group and ShareCafe
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