Essendant leaders on the SPR merger

OPI catches up with Essendant CEO Ric Phillips and President of Office & Facilities Harry Dochelli to discuss the transaction with SP Richards.

It’s been a hectic few days for Essendant’s Ric Phillips and Harry Dochelli following the news that the wholesaler is to combine with main rival SP Richards (SPR) in a move that is likely to change the landscape of the US office products industry.

Both execs have been busy communicating internally and with customers, suppliers and business partners alike in the days following the SPR announcement. Their brief: to help all parties understand how this deal is beneficial to them, their relationship with Essendant, and to the industry as a whole.

It’s been something of a PR exercise, governed by a set of communication guidelines that the company issued on the day of the announcement to ensure that all employees – senior management included – are speaking “with one voice”. That’s normal in a situation like this and, while we understand that there is only so much they can say at this point, we still appreciate Phillips and Dochelli taking the time to speak to us.

When the news broke, Dochelli was actually on a jan/san-related customer trip in Mexico with some of Essendant’s key suppliers and resellers. This allowed him to have immediate face-to-face contact with an important group of partners, which was helpful.

Phillips declined to go into detail about who made the first move, etc in bringing this transaction to fruition (this will probably come out in regulatory filings for those who are interested), but said that discussions had taken place on and off for a number of years. However, over the past few months, with the current industry dynamics and SPR’s parent company Genuine Parts considering its options for the wholesaler, “the pieces just came together in terms of the interest, the motivation and the attractiveness of the transaction”.

Merging with SPR was not the only strategic option that Phillips and the Essendant management team and board looked at. Phillips said that when he took on the CEO role last summer, his mandate was to look at all strategic options available – “everything was on the table” – but when it became clear that merging with SPR was on the cards, that this was “a really attractive option”.

In line with the message that came out of the initial press release and conference call, Phillips said that he was “confident” the transaction would receive regulatory approval by the end of the year due to the “complementary nature” of the two businesses and the combination of resources that would make the independent dealer channel (IDC) stronger.

Asked whether the transaction merely reduces choice for independent dealers, Phillips responded by arguing that the IDC has been under a lot of pressure in an increasingly crowded marketplace. “Customers have lots of choices from Amazon, other e-commerce players, buying groups, big-box stores, clubs and warehouses, and other distributors,” he said. “We think it is a competitive marketplace today and will remain so after we combine with SP Richards.”

While Essendant will remain committed to its Preferred Supplier Program following the merger with SPR, Phillips denied that this would result in a narrower product choice. “As a wholesaler, we need to continue to have a broad offering and to provide what our customers want, especially in terms of how they respond to the demand of the end consumers they work with. Partnering and jointly investing in the channel with our key suppliers is an important part of our strategy and it is beneficial to the channel.”

Dochelli added that manufacturers have choices about how they sell and bring their products to market. “I don’t see it as an option that they get eliminated [if they are not an Essendant Preferred Supplier]; it is still a very large market and they can choose how they go to market. We’ve seen manufacturers selling in multiple ways, and sometimes in ways that are competitive to us. We don’t see [the merger with SPR] as restricting as you suggest.”

One goal of the merger is to drive sales growth. That has led to many questioning how combining two companies with falling sales will create an entity that can grow sales.

Dochelli responded to that by pointing to what internally is being referred to as “the hidden gem” in the transaction – namely SPR’s Impact, Safety Zone and GCN facilities, breakroom and safety (FBS) businesses. The jan/san dealers that Dochelli was with in Mexico last week were said to be “ecstatic” about the opportunity to sell these products, and Dochelli said he expects sales in the category “to grow dramatically” as a result of the SPR combination. He also pointed to the “optimisation of our brands and product offering” as a sales driver.

In short, the underlying message is that merging with SPR will create a stronger, more efficient partner for the IDC, with more resources to invest in areas such as technology. “The independent channel is really important for us, and we have to figure out the best way to keep them competitive in the tough marketplace,” said Dochelli. “The one thing you will hear from our customers is that a stronger Essendant is a much better option than having a weaker Essendant and a weaker SPR.”

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