Distribution Solutions Group (DSGR) 16th Annual Southwest IDEAS Conference summary

Business Overview and Strategy

• Operates three specialty distribution divisions: Lawson Products (MRO), Gexpro Services (OEM), and TestEquity (industrial technologies), each with its own leadership and sales force, serving over 190,000 customers in 40+ countries.

• Generates $1.9 billion in revenue with 9% EBITDA margins and strong free cash flow, focusing on capital redeployment and diversification.

• Emphasizes value-added distribution and services such as vendor managed inventory, kitting, calibration, and digital solutions to build sticky customer relationships and drive high retention.

• Maintains low customer and supplier concentration, reducing risk and volatility across cycles, with robust end-market diversification including electronic assembly, industrial, auto/transportation, aerospace/defense, and renewables.

• CapEx is less than 1% of sales, with high returns on working capital and a focus on ROIC for all investments.

Segment Performance and Integration

• Lawson Products provides high-margin MRO services, with 860 sales reps and about 38% of revenue, focusing on salesforce optimization and regrowth.

• Gexpro Services, acquired in 2020, targets global OEMs, managing complex Class C parts sourcing and supply.

• TestEquity, acquired in 2017, supplies electronic production materials and test equipment, recently expanded with the Hisco acquisition.

• Each division remains operationally independent to protect customer experience, but benefits from shared services, cost synergies, and cross-selling initiatives.

• Recent acquisitions, including Source Atlantic and S&S Automotive, are expected to enhance market presence and drive incremental growth.

M&A and Capital Allocation

• M&A is central, with 11 acquisitions closed, a dedicated team, and over 800 targets reviewed year-to-date; 10 strategic acquisitions since 2022.

• Acquisitions typically priced between 4.7x and 9.4x EBITDA, with integration reducing multiples by about two turns.

• Free cash flow is primarily redeployed into acquisitions; stock buybacks are used opportunistically, and no dividend is paid.

• Leverage is managed at 3–4x, with flexibility to go higher for strategic deals; net debt leverage stood at 3.7x at quarter-end, with $328 million in liquidity.

• ROIC currently at 10%, with a long-term target of 20% as acquisitions mature and synergies are realized; aims to increase RONWC to over 50%.