Navigating The Future Of Independence

Arc3 Gases, one year after the merger of two independent distributors

Over the past few years, independent distributors have gone through a sea change focusing on their businesses as they compete with aggressive online counterparts and national corporations. Some small businesses have chosen to sell their companies…to the nationals and large regionals. Two distributors went on a different path. Not willing to give up their independent status and family ownership, Machine & Welding Supply Co., headquartered in Dunn, North Carolina, and Arcet Equipment Co., headquartered in Richmond, Virginia, merged on October 1, 2013. Calling it a “once-in-a-lifetime opportunity,” Emmett Aldredge Jr., chairman of Machine & Welding Supply Co., and Parker Dillard, chairman of Arcet Equipment Co., sat down with Welding & Gases Today Editor Carole Jesiolowski to discuss why they did it, how they did it, and what the future may hold for this new independent distribution concept.

Arcet Equipment Company
Headquarters:  Richmond, VA
Locations:  22
Employees:  220
Founded: 1946

Machine & Welding Supply Company
Headquarters: Dunn, NC
Locations: 24
Employees: 240
Founded: 1925

Both of your companies have a long history as successful, family-owned independent distributorships, Machine & Welding Supply since 1925, Arcet since 1946. A 50/50 merger of two equal distributors is rarely done in this industry. What led to this?

Emmett Aldredge, Jr.

Emmett: That’s a good story. Jeff Johnson, who at the time was M&W’s vice president of sales & marketing, and Ray Dillard, Arcet’s vice president, were at a distributor advisory council meeting and began talking about the challenges independents are facing. They wondered what it would be like if Arcet and M&W worked together. That night, Jeff emailed my son, Emmett III, and asked if we should be talking with Arcet, get acquainted, and see what happens. He immediately responded yes. We weren’t sure exactly what would come of it. We thought it was an interesting idea, and at least we should talk.

Were you competitors?

Parker: We were quasi-competitors along the border of Virginia and North Carolina with some overlapping territories.

Did you know each other?

Parker Dillard

Parker: We really did not know one another. Arcet was owned by the Dillards and the Ellens. M&W by the Aldredges. We knew some of their people.
Emmett: We heard a lot of positive things about each other from vendors.
Parker: We met for the first time on June 1, 2011.

Why did you do it?

Parker: That was the first question we asked ourselves. There are two answers. We felt this was a rare opportunity that would present itself only once. Second, we felt we could go forward stronger as one company rather than two.

Both companies have experience making acquisitions. Why not one of you acquiring the other? Why a merger?

Emmett: Neither of us was interested in selling our business. Both are strong family businesses, and we both are committed to keeping the independent distributor in the market.
Parker: That’s well put, Emmett. We didn’t meet to talk about acquisition. We didn’t feel like that was our future. This presented something else. We had two meetings just to feel each other out and ask very general questions from 30,000 feet. After our meetings, we decided to bring in the professionals. We sought some financial advice to see from an intrinsic value basis if 1+1=2, or 1+1=3. We asked what it meant for our ability to grow on the one hand independently, on the other hand together.

The Arc3 management after signing the merger documents. (L-R) Emmett Aldredge III, Andy Ellen, Ray Dillard, Emmett Aldredge Jr., Parker Dillard, Paul Dillard, Christopher Aldredge

What were those general questions you asked in the beginning?

Emmett Aldredge Jr. and Parker Dillard went on a road trip to meet employees at each other’s branch stores. They were greeted at Machine & Welding Supply Company’s two-person store in Rockingham, North Carolina, by Preston Dawkins (left) and Scott Brigman, with a prepared lunch and welcome sign.

Parker: We asked questions about size, culture, trucks. If we merged, would we still be able to operate as we do now. If Arcet needed a truck, we bought it, and we didn’t answer to anyone.
Emmett: It was the same for M&W. We wanted to make sure we would continue to have the kind of flexibility we needed to be responsive to our customers.
Parker: We wanted to make sure that did not change.
Emmett: The more we got together, the more we learned about each other. We realized how similar our values were and how committed we were to our employees and customers. Everything seemed to come together very well, and I think one of the keys was that we really liked those guys, and they must have liked us. There was a similar culture within our organizations and a determination to be a privately owned family business.
Parker: We did a lot of talking, meeting halfway between Richmond and Dunn. We interviewed four consultants, but none had ever done this type of deal. They wanted to know who was going to work for the other side. We wanted one consultant to work for both sides. It was unheard of to do that.
Emmett: We were advised that each company needed its own consultants, but Parker kept insisting that we do it differently. After all, we had the same goals, a common culture and a commitment to remaining independent. Why should we be adversaries if we’re going to work this out to the benefit of both sides? So we hired a consultant who agreed to be neutral. Then we had a lot of lawyers and accountants who did their own due diligence.

Keeping each other’s employees informed was critical to the success of the merger. Arcet leadership was introduced to the sales team at a Machine & Welding Supply Company sales meeting.

Integrating Assets of Two Companies

How did you come up with the name Arc3?

Parker: We strongly considered having the word “allied” in the name, though if you google “allied” anything, it’s all over the place. We went back and forth. It was intense. We chose “Arc3 Gases” because it is original and unique. “Arc” is for welding; “Gases” is self explanatory; and “3” represents the three elements of the company: loyal employees, valued customers, family traditions.

Your companies continue to maintain their individual names, Arcet Equipment Company and Machine & Welding Supply. Is that confusing to your customers?

Emmett: Arc3 Gases is the holding company that owns two subsidiaries. Our goal is to be Arc3 Gases everywhere. It’s just a matter of figuring out the best way to do that. We’re doing everything we can to not make mistakes.
Parker: We’re deliberately approaching marketing ourselves as one company, and there is a plan to roll it out. If there’s any impatience, it’s internal. Employees want hats and shirts.
Emmett: We will introduce a brand identity and logo that reflects our shared values, our commitment to our customers and the spirit of our merger.

Besides the name, what other things must be integrated?

Emmett: We identified 15 to 20 areas to look at. Progress is being made daily, though much of it is behind the scenes. We don’t have to do it all at once, and we’re being very methodical. Parker has, for many years, distributed an Arcet monthly newsletter that is a great vehicle for providing updates on the integration to our employees.
Parker: One of the main areas to integrate was our two computer systems. Fortunately, we were both using the same vendor, but different versions of the program. We are now on the same version. We are also working on getting all 46 stores on the same system so they can communicate with each other.
Emmett: Other areas of integration include coordinating benefits, such as retirement plans and health insurance programs.
Parker: Arcet had a defined benefit plan. M&W had frozen theirs in 2008 and migrated exclusively to a 401K. To be uniform, Arcet froze its DB plan and adopted the 401K. And we too are now on a matching program.
Emmett: We are confident that in the long term we will be able to offer employees better benefit programs due to the merger.
Parker: Another area is the fill plants. So much of the gas business depends on logistics. Arcet has three regional fill plants, while M&W has the one main plant in Dunn.

How did your employees handle the change?

Parker: I think they handled it very well. One of the first things we promised was that there would be no layoffs as a result of the merger. Both Arcet and M&W have employees who have been with us for a long time and some are near retirement. I’m very excited about long-term opportunities for them to be successful in a larger organization.

Who’s in charge? What’s Arc3’s management structure?

Emmett: Arc3 Gases is the holding company and there is an Arc3 Gases board with officers. Parker and I are co-chairmen. Parker and Emmett Aldredge III are co-presidents of Arc3 Gases. Andy Ellen is the CFO of Arc 3 Gases. Christopher Aldredge is COO of Arc3 Gases. Ray Dillard is the general manager of Arcet, and Jeff Johnson is the general manager of Machine & Welding Supply.

Combining Arcet forces (left) and Machine & Welding Supply Company’s forces (right) presents a stronger company in several areas.

Meeting Challenges

The increasing size of national corporations and online sales from AmazonSupply, Grainger and even welding equipment manufacturers are changing the distribution landscape. Among independent distributors, there is a lot of interest in what you are doing to maintain the independent distributorship. Do you think more mergers like yours will occur?

Parker: I’ve heard one distributor express an interest in pursuing this with a couple of neighboring independent distributors. I think there have to be extraordinary circumstances for something like this to work. The first thing you have to do is leave your ego at the door, and that’s sometimes difficult.
Emmett: The ego part could certainly get in the way of something like this.
Parker: I think some may give it a shot, for the same reasons we did: They could present a stronger company as a combined force, rather than going separately
Emmett: They would also need a lot of patience. At some point, we became very determined to make it happen. We saw the value of it, and we worked our way through every obstacle that came up.
Parker: Another roadblock to a successful merger is overlapping stores, which could mean store closings and layoffs. I don’t think we would have gone through this if it meant we would have to close stores or lay off employees. We were fortunate in that we didn’t have that challenge.

October 1, 2014, marks the one-year anniversary of your merger. Looking back, what have you learned that you didn’t know a year ago?

Emmett: Not much. There was total transparency from the beginning. After a year, we see that Arcet does some things better than Machine & Welding, and vice versa. Our goal for Arc3 Gases is to adopt best practices from both companies.

What’s next for Arc3?

Emmett: Our plan is to grow and expand and continue to do the things we’ve done throughout the history of our companies, while maintaining our values and culture. Together, Arc3 has 157 years and seven generations of family business experience.
Parker: That’s a good point.
Emmett: And we’re learning so much from each other. Right after the merger became official, Arc3 ownership made joint visits to every location, every fill plant, every facility. The thing that struck me when I walked into an Arcet store was that I might as well have been walking into an M&W store. And when I talked to an Arcet employee, I might as well have been talking to an M&W employee. To me, it reaffirmed that we had done the right thing.
Parker: We split into three groups of representatives from both companies. We began in October and finished by Thanksgiving.
Emmett: Parker, Christopher and I visited together. Every place we went, we went together. It was reaffirming to know that M&W people thought Parker and the Arcet people were great guys, and for the Arcet people to know that we are just good old boys from the south. We always kidded about calling Virginia the northern part of our territory (lots of laughter).
Parker: I echo what Emmett said. Going into an M&W store was like being at home.

From Two Companies, One Vision
The merger of two distributors, while rare, does occur in the gases and welding industry. Read how Standard Welders Supply and Mid-South Oxygen Company merged in 1996 to create nexAir, now one of the nation’s largest independent distributors.

Gases and Welding Distributors Association