Distribution Solutions Group (DSGR) Stephens 26th Annual Investment Conference | NASH2024 summary

Business overview and strategy

• DSG formed from the combination of Lawson, Gexpro Services, and TestEquity, each bringing specialized distribution capabilities and long-standing industry relationships.

• Focus on value-added, hard-to-disintermediate services, especially in Class C parts and MRO, with deep customer integration and recurring relationships.

• Capital allocation is highly aligned, with significant insider ownership and a long-term, risk-efficient approach to compounding capital.

• Preference for direct, non-auction acquisitions, leveraging industry relationships and a robust pipeline, with 11 acquisitions completed since DSG's formation.

• Management and operational teams are incentivized through equity waterfalls and performance-based structures to ensure alignment and drive results.

Acquisition and integration approach

• Over $900 million in revenue and $75 million in EBITDA acquired through 11 deals in 30 months, focusing on strategic fit and operational improvement.

• Acquisitions are targeted to enhance verticals, with a disciplined filter and no reliance on auction processes.

• Integration is supported by a captive consulting team (HOPS) focused on IT, AI, and KPI management, ensuring operational targets are met.

• Alignment extends to operational teams through equity participation and performance-based incentives.

• Five tuck-in acquisitions in the current year were executed against specific objectives, benefiting from favorable market conditions.

Financial goals and performance

• Five-year targets include mid- to high-single-digit organic revenue growth, 75+ bps annual margin expansion, and 20%+ EBITDA CAGR (including acquisitions).

• Aims for $450 million EBITDA and $3.3 billion revenue within five years, with confidence in achieving these through both organic and inorganic growth.

• Organic growth has faced headwinds due to weak ISM and market conditions, but cost structure improvements and acquisition integration have created operating leverage.

• Investments in sales force and technology, such as CRM rollout, are expected to drive future organic growth and productivity.

• Margin improvement initiatives are ongoing, with specific focus on raising TestEquity and Hisco margins to targeted levels as market conditions normalize.