On the surface, Parts Town’s deal to buy Heritage Parts in October 2019, may have seemed like just another transaction in the seemingly endless parade of mergers and acquisitions that seem to define the foodservice equipment industry of late. But the deal may have broader implications.
For starters, the deal draws to a close a protracted period of intense competition between Parts Town and Heritage. “The companies have looked over the bunker at one another for a long time and wittingly or unwittingly we have forced one another to become better companies than we might not have otherwise become without that competitive tension,” said John McDonough, CEO for Heritage. McDonough will help with the integration of the companies before eventually assuming a position on Parts Town’s board of directors.
Beyond creating a combined company with more than $950 million in annual revenues and more than 2,600 employees, the deal could signal the dawn of a new era. Unlike other acquisition scenarios, where the buyer simply absorbs the company it purchases, the intent here is to blend the distinguishing characteristics of both Parts Town and Heritage. “Together we can build the most admired distribution, technology and information business of any sort in any industry,” said Steve Snower, Parts Town’s CEO.
What are those characteristics? “Parts Town has long been the high-tech company and Heritage, for the longest time, has been the high-touch company,” McDonough noted. “Over the past five years or so, we’ve aggressively invested in trying to match the other’s capability set — Parts Town in customer service and Heritage in technology — to try to bridge that gap. But we have an opportunity now to truly create a high-tech and a high-touch company. “We like to use the phrase ‘enabling a positive customer service experience regardless of who is turning the wrench’ and we can accomplish that through a combination of technology, availability and high touch when it’s needed.”
Impact to Service Agents
While the companies distribute parts to a variety of foodservice related companies, service agents represent the core customers for both Parts Town and Heritage. And Snower sees several ways the deal will benefit this key constituency. For example, the combined company will have a larger parts inventory and access to such an inventory can help service agents do their jobs better. “Service companies can’t stock everything. We want to help them stock the items they should stock, of course,” Snower said. “The combined inventory and combined strength of the business will take this to the next level.”
In addition, Parts Town anticipates the strength of the combined entity will allow it to accelerate the pace at which it brings new technology to the market. “These tools will allow service companies to stock the right parts in their markets, to access parts quicker than ever and, ultimately, for the industry overall, the benefit will be the bringing of the ecosystem of parts, service and information closer together so that equipment can stay up and running more effectively and safer than ever with OEM [original equipment manufacturer] parts,” Snower said. “We want to help service companies take the next steps with their businesses. Both Parts Town and Heritage have done a lot for service companies and we want to bring it together in a package that can help service companies be more successful going forward by getting them more information faster and getting their parts faster.”
When trying to help service agents grow their businesses, Parts Town does that by more than shipping parts on time. The company distributes “hundreds of service leads” every day to local field service companies across North America, Snower said. “People come to us asking about service and we distribute those leads to our service partners. Our intention is to bring them more leads and opportunities and help them capitalize.”
Naturally, a deal of this nature caught the attention of the service agents, some of whom are reserving judgement on the impact that combining these two companies will have on their businesses. “Parts Town has done a good job of pushing the OEM parts and that speaks to our values,” said John Schwindt, vice president of operations/general manager for Colorado-based Hawkins Commercial Appliance. “For me, in the whole world of PE [private equity] and consolidation, this is the best-case scenario.”
The intense competition between Parts Town and Heritage had its benefits for service agents. “They were basically offering the same product. So how else can they make it better for that customer — whether it was the end user or the service company,” said Glenn Clark Jr., president of Clark Service Group, a Pennsylvania-based service agent. “Faster delivery and better customer service were the options. Of course, for this to work you have to put the right, smart people in place.”
That said, Schwindt and other service agents are not without their concerns about what comes next. “It scares me because our choices of who we can buy parts from is now limited. So many manufacturers were making us buy from Parts Town or Heritage before. Now our choices are limited,” Schwindt says.
And it’s that narrowing of the parts playing field that has other service agents concerned, too, because this was not Parts Town’s first acquisition of another parts distributor in the U.S. In May of 2018, Parts Town acquired the assets of 3Wire’s parts distribution business and two months later it did the same with Smart Care’s PartsXpress. Add to that the company’s acquisitions of service agents such as FESCO in 2015 and Whaley Foodservice Repairs in 2016 you have a few service agents feeling uncertain about what’s to come.
“It’s not what they are going to do but what they have the ability to do,” said Daniel Dibeler, president of K&D Factory Service, a Pennsylvania-based service agent. “What makes me nervous is that a lot of the deals we worked are based on competition. Will companies lose those discounts because there’s a lack of competition in place? I can’t take my spend somewhere else if things aren’t working well. Their return policies were so customer friendly because they were in a competitive environment. Will they change them in a couple of years because the competitive environment is no longer what it once was?”
Indeed, the competitive landscape within the foodservice industry continues to evolve across all segments, including parts distribution. But the more things change, the more they seem to stay the same. “There’s a lot of opportunity out there. It’s how you market yourself to take care of it,” Clark said. “What’s most important, though, is knowing which part to buy and how to put it on properly.”