By Michael Collins, Managing Principal, EquiNova
Normally, this newsletter focuses on news and insights involving construction supply companies that cater to professional builders and remodelers. But these days, we’re also paying attention to a development involving hardware stores and small dealers that has implications for the overall supply chain and the financial health of both dealers and suppliers.
On Oct. 14, True Value Co. announced it had filed for protection from creditors under Chapter 11 of the bankruptcy code. At the same time, it revealed it had reached an agreement to sell its operations to Do it Best, the Indiana-based co-op for hardware stores and pro dealers, for $153 million in cash and assumption of up to $5 million in trade payables.
The agreement designates Do it Best as the “stalking horse,” or lead buyer, of True Value. This would avert liquidation of the company and instead fold True Value’s operations into Do it Best. The Federal Bankruptcy Court in Wilmington, DE, is handling the case; its next hearing will be on Nov. 4.
True Value Co. serves roughly 4,500 independent hardware stores and small dealers around the country, from Alaska to the Florida Keys. If Do it Best takes over, it would potentially nearly double the number of member companies and increase Do it Best’s buying power by one-third over the $4.57 billion level reached in the fiscal year ended June 30.
But other distributors–including Orgill and the Hardlines Distributor Alliance–already are wooing True Value members to join them. The appeals have gotten so strong that Do it Best issued a statement declaring it’s ready to embrace True Value members “through a simple no-fee Do it Best application process that ensures ordering within 24 hours.”
All this takes place at a time in which True Value hasn’t been paying vendors for drop-ship orders and has begun seeing customers slow-pay invoices, according to a store owner who sits on the board of True Value’s holding company. In addition, PNC, a major lender to True Value, has filed an appeal to the Bankruptcy Court urging it to pay more attention to lenders’ concerns. True Value’s Chapter 11 filing lists its assets as $100 million to $500 million and its liabilities at $500 million to $1 billion. The vast majority of both involve inventory.
It could take until New Year’s before the Chapter 11 case is resolved, and you can expect a war between the distributors to win True Value members will go on well into 2025. Shifts in dealer affiliations almost invariably lead to shifts in brands those dealers sell. There also potentially are changes in the competitive landscape as the bigger True Value dealers move to stronger, better-financed distributors.
None of this matches the impact of superdeals like The Home Depot’s acquisition of SRS Distribution, but collectively the changes will be notable. If you’re involved in a transaction or are thinking of selling, consider adding a note in your plans to watch this case.
