Franklin Electric, Headwater Focus on Groundwater Contractors
Distributors can act as partners, resources and lifelines to contractors in the water supply industry. Headwater Companies LLC, though newly formed, has distributor DNA. The new company, announced in April by parent company Franklin Electric, brings together 2M Company Inc., Western Hydro Holding Corporation and Drillers Service Inc. (DSI). Franklin bought the three companies (and the 2M/DSI joint venture) and rolled them up into Headwater Companies, installing Franklin veteran DeLancey Davis as president of the new holding company. The $89 million deal created a distributor network — with 60 locations and nearly 500 employees — that Franklin Chairman and CEO Gregg Sengstack calls “the largest in the industry.”
The goal is to manage and, ultimately, expand a strong network of distributors focused on groundwater products. Headwater Companies will act as a “full line wholesale distributor,” which means contractors can rely on them for products from a range of manufacturers, not just Franklin Electric.
National Driller spoke with Davis recently about the new company, what drove the decision and what the future looks like for Headwater Companies. Our conversation has been edited for space and clarity.
Q. Can you briefly describe this acquisition and the strategic thinking behind it?
A. Franklin, early on, recognized the importance of partnering with the best wholesale distributors, depending on the markets and the regions, to be able to have products properly represented, supported, explained and delivered to the installing contractor. Over time, for all of these companies — basically privately owned and owner operated — the issue became succession: What are they going to do with these companies? Can they hand them off to the next generation? That becomes an issue, depending on how many people are in the next generation: What are the tax implications? How are you going to manage it? Will they have the ability to conduct the business the way it needs to be conducted? We realized there was an enormous opportunity to create a vehicle, a holding company, that would provide investment in wholesale distribution and maintain the integrity of groundwater specialty wholesale distribution.
Q. What is the timeline for bringing other companies into the Headwater Companies fold?
A. We have plenty to do with the companies that have helped us establish Headwater Companies. We have lots of goals internally in terms of creating a unified operational system, making sure that we have common support programs for employees, making sure that we have excellent outreach support availability for all our customers. We’re going to be very focused on getting our business, as it’s currently configured, in a full, highly-supported operational mode in every aspect — marketing, sales, inventory management, financial controls. We’ve got a lot of work to do there. Once that is completed, the timing for future acquisitions is really up to those owners. If and when it makes sense for that distributor and Headwater Companies, we will explore that opportunity.
Q. Of all the distributors in the U.S., why pick these three (and the fourth in the joint venture)?
A. Those three with the joint venture ... they were companies that were very much at the forefront of the strategic discussions that we were having. They were companies that were actively looking for solutions for their employees and their customers. And they were very helpful and informative in guiding us in structuring a corporate holding company that would be very beneficial to their future. The timing was right for them and the timing was right for us. We didn’t want to do this without the critical mass that we believe is important to be the type of distributor that we want to be for our customers, in terms of financial strength, geographic reach, the ability to give contractors exposure to practices around the country. There are quite a few inputs that went into the founding members so far.
Q. The new company under Franklin’s ownership is called Headwater Companies. What makes you a good fit to lead this new distribution channel?
A. I’ve been very involved in building out distribution. I’ve been very involved in water systems from a policy standpoint down to convincing a young contractor that these products and this distributor are going to be a great partner for his business. Our board felt that I had enough bandwidth to be able to take these businesses, understand them, support them, understand that we’re acquiring companies that are excellent, that are great at what they do. The goal here is to get them working closer together where it makes sense and to maintain their unique identities, make sure their brands are completely supported as well.
Q. What does this mean to drilling contractors and other water professionals?
A. I think that it’s going to be big news for them. I think a big concern for a lot of contractors, certainly a lot of distribution employees, is what happens to our company when Mr. X decides to retire. As excellent as these companies were, there were clouds over what happens to these companies when the ownership decides to move on. ... There’s a fear that you would have specialty wholesale pump distribution get subsumed by larger multi-billion dollar wholesale distribution entities that aren’t focused on groundwater, and [they would] start cutting back on services, start cutting back on support. So what Headwater Companies means is that [we keep] everything that contractors have grown to rely on — a wholesale distributor, to a contractor, is many things: a supply house, source of information, they handle warranties, sometimes they’re a bank, sometimes they’re helping finance their businesses. These are very important, in depth relationships that are very symbiotic. What we’re doing is providing consistency and assurance that these companies are going to be there in the long term now that they’re under the umbrella of a publicly traded company that’s completely focused on groundwater.
Q. What does the next five years look like for Headwater Companies?
A. It looks like big growth. First thing we want to do is perfect our internal systems and controls so that we are readily able and adaptable to bring in other companies and onboard them quickly from a back office standpoint, but enable them to maintain their branding and their operations, their customer base and service, and the things that they’ve done with their customer base that are fantastic. Then it’s growth. It’s Headwater Companies rolling out its platform. We’re already a national company and the biggest player in the industry. We feel that there’s plenty of room to grow from there.