Two locally based hardware store giants could soon be talking about building a blockbuster industry deal.
Oak Brook-based Ace Hardware is open to making a bid for its Chicago rival, True Value Co., which reportedly is exploring a sale that could fetch around $800 million.
“It is our understanding that True Value is evaluating or conducting a formal auction process for the sale of its business,” wrote John Venhuizen, Ace president and CEO, in an email the company sent to me. “At this point, we have received no contact to participate in that auction process. If contacted, we would have interest in exploring it.”
Ace is signaling it’s serious about competing with other suitors, should True Value hit the selling block. Among those I’d also expect to evaluate a True Value deal: Private equity groups, national or regional hardware and retail chains and, perhaps, online seller Amazon or another web-based consumer goods company.
True Value won’t directly address a Bloomberg News report this week that the retailer is working with an investment house on strategic options, including a potential sale. True Value said in an email statement to me that it is “continuously assessing and evaluating many opportunities in an effort to create maximum value for all of our retailers.”
Why would Ace want True Value?
A buyout of True Value, with nearly 4,400 stores, would almost double Ace’s retail store network of about 5,000 stores. Ace has 17 product distribution centers compared with 13 for True Value.
Both Ace and True Value are retail cooperatives and don’t operate as traditional public or privately held companies. Shareholders are primarily independent store owners operating under the Ace or True Value banners.
Ace understands the co-op retail structure and the challenges facing independent hardware store operators as a result of competition from big-box chains like Home Depotand Lowe’s and the online prowess of Amazon.
In the marketplace, customers see Ace and True Value as brands that support locally owned, neighborhood hardware outlets.
Assuming Ace got financing to make a deal, the company could stand to make back some of its purchase price by consolidating management and operating functions, prompting layoffs.
It would get more purchasing heft to pressure suppliers to cut costs while expanding its distribution of hardware, paint, garden supplies and other products to its retail network.
What’s more, if Ace buys True Value it won’t have to worry about confronting a new, invigorated competitor for a cut of the estimated $24 billion “do-it-yourself” U.S. hardware market.
Like any buyout, True Value’s deal will come down to the best price.
There is a lot of private equity money hunting for businesses and True Value will be on their radar.
Don’t be surprised if Chicago’s top private equity powers, Madison Dearborn Partners and Byron Trott’s BDT Capital Partners, check out True Value.
BDT, in particular, has an eye for hometown consumer product companies. In 2016, it bought a large equity slice of Lou Malnati’s pizza chain and an ownership stake in Athletico Physical Therapy.
Or maybe this is an opportunity for a superstore seller like Home Depot or Lowe’s to become more hyperlocal and get closer to the neighborhood customers — a tack Target is using with its small urban store strategy.
Then there’s the all-powerful Amazon.
Having already taken a flier on the nation’s grocery store business with his $13.4 billion bid for Whole Foods, Amazon’s visionary and aggressive CEO Jeff Bezos may see similar opportunities in the consumer hardware segment.
The “do-it-yourself” hardware sector is underserved online — similar to the grocery business — since a vast majority of goods still are being sold over-the-counter at neighborhood stores.
At about $800 million, the True Value price tag would be incredibly easy to pay for the deep-pocketed Amazon.
There’s a way to go before True Value’s fate is determined.
Yet since hearing from Ace’s Venhuizen, his company’s longtime advertising jingle is haunting me.
Maybe “Ace is the place” for a True Value buyout bid?