Third Bridge 专家访谈称 Wesco 受益数据中心建设但同时面临项目延期与直销挤压

[[00:01:40]]
How well-positioned do you think Wesco is to benefit from the data centre build-out vs peer distributors? How have you seen the data centre build-out impacting the electrical distribution market overall?

[[00:02:05]]
Yes. I mean it's clearly been the largest growth segment for the whole electrical industry, not just the distributors, but a lot of the manufacturers. Wesco is certainly in a very strong position to capitalise on that as far as electrical distributors go. When you look at the data centre, they kind of break it down what they call white space and grey space. Grey space would be the traditional, what I would say, electrical distribution segments like power distribution, electrical systems, and then you get into like MRO and automation, so that would be the traditional electrical distributor products, let's say, but that's only 20% of the data centre space. The white space is 80%, and that's when you get into more of the networking, fibre security, high-speed interconnects. We used to call it datacom products. Actually Wesco and Graybar are the two strongest in that area. They made an acquisition a while ago to get into that space. Graybar has kind of organically been in it for a long time. Whereas like Rexel or where I'm at, they made an acquisition recently of Talley, which is kind of gets them into that space, but Wesco is pretty dominant, so it really gives them access to that 80% white space to complement the 20% grey space, so they also have full-scale capabilities to help the data centre construction, the actual building construction.

These things are campuses. I've been involved in some of the ones that Rexel did, and they are huge projects, multiple huge buildings that go into them. A lot of construction coordination we would do it and Wesco does it, too, where you provide on-site trailers or even we've opened a whole branch just to support a data centre construction to provide material management and handling, provide services. We've done wire management, which is a huge part. There's a lot of wire and cables that goes into these distribution centres. Wesco certainly experienced a lot of that on-site construction management, if you will. Again, they provide a lot of products that can go into a data centre from a distributor standpoint. I think, and they're the leader in electrical distribution in North America. I mean they've got the largest market share, which is only about 12%. The industry is still very fragmented. When you think about the big guys, Wesco, Graybar, Sonepar, Rexel, most of them don't even have double-digit market share yet, so it's a still fragmented industry, but Wesco is the largest right now.

[[00:05:24]]
When do you think Wesco or Rexel would start generating revenue from a data centre, on average? When in the construction process would a distributor be brought in? When would that actually start generating revenue? Is it during the construction process or once it starts operating? What does that typically look like?

[[00:05:52]]
Yes, it would be during the construction process. Again, it's when they start putting the electrical infrastructure in, so it would either be like the cabling and cable tray that would pull the power into the facility or busway is going to be more popular, especially as they transition to DC, but it would be the construction of the buildings themselves. Again, that would be the traditional electrical distributor where they would start, so you've got all kinds of products that go in there, wire and cabling. You have transformers, you have switchgear and all the connectors and what we call bulk items that would go in there, lighting, those types of things, so it would start when the actual construction of the buildings themselves start.

[[00:06:54]]
There haven't been too many cancellations for data centres, but we have seen a fair amount of delays. I think this is in the double digits in terms of the mega and hyperscale gigawatt campus projects that were expected to be done sometime in 2026, or perhaps 2027. We're seeing some of these get pushed out to 2029-30. When a construction project such as a data centre gets delayed in this way, does that delay impact the revenue recognition cycle of the distributors more, or would you expect that to have more of an impact on suppliers or OEMs?

[[00:07:40]]
Yes. I mean a lot of it has been switchgear and transformers, the lead times on those products ever since COVID, honestly. I mean you could have something that used to be maybe 10-12-week lead time that have pushed out to years, so if you can't get the major switchgear and the transformers and the substations and that big electrical switchgear for a project, you can't do a lot of the rest of the work, so it definitely delays revenue recognition for a distributor if a project gets delayed like that. Again, a lot of it is product lead time. I know some of it obviously is communities pushing back data centres and those types of things, but I think really the transformer and switchgear lead times have been the biggest delay.

[[00:08:39]]
You mentioned that it's primarily transformers and switchgear driving up delays in lead times at this point. Do you have any reason to think that Wesco suppliers have stronger lead times than competitors such as Graybar, Sonepar or Rexel in these key equipment segments?

[[00:08:59]]
No. I mean they're buying from all the same guys. A lot of the bigger switchgear is sold direct anyway, so it's not necessarily the revenue that Wesco would generate from that. It's just the fact that it delays the whole project, so all the stuff that Wesco would sell is delayed because all that stuff is upstream in the construction project, but all the major switchgear manufacturers, the Eatons, the Schneiders, the ABBs all the distributors buy from those guys, and they're all in the same boat when it comes to lead times. I don't think any of them necessarily have shorter lead times than the others, maybe by a little bit. In general, that whole industry the lead times have been extended for 5-6 years now.

[[00:09:53]]
You touched on how, in the past, you've seen distributors such as Wesco building an on-site presence to support data centre build-outs or large construction build-outs. Is there a way that Wesco can protect itself contractually from delays? Have you ever seen contractual or customer language that says, "If there's a delay, we're still going to get paid X, Y and Z to support us through that because we invest alongside you guys"?

[[00:10:28]]
Not so much, but it depends on the terms and conditions they have, like it depends on who they're contracting with to. My experience with Rexel, we would be working with an EPC, so an engineered procurement construction, somebody like a Fluor Daniel or a Bechtel, the large general contractor doing the project, so it depends on your terms and conditions with them, and that's something, too, that the big guys, the Rexels, the Wescos, the Graybars, they've got experience dealing on the terms and conditions side with these large contractors. Not every electrical distributor has that experience nor would they want to because there's fundamental risks involved from a liability and those types of things. It really depends on the Ts and Cs and what's negotiated. There can be a major investment by a distributor. Like I said in my experience, we went out and rented a 50,000 square foot building just to support the wire and cable for a data centre build-out. That was kind of our risk. We went out and signed the lease on that building, betting on the come with the project. If that project got cancelled or delayed, we might be hanging out there with a lease on a large building, so things like that happen, and there are some risks associated with it, but it also just depends on the Ts and Cs that they've negotiated with whoever their end customer is. It could be an EPC, it could be an electrical contractor also that's working for that EPC.

[[00:12:14]]
You touched on how Wesco and competitors typically share major suppliers. There isn't necessarily a differentiation on the supplier side. How do EPC [engineering, procurement and construction] players determine which distributor they will typically use for these build-outs? Is there any exclusivity or material relationships between Wesco and Bechtel, for example? Do you see any partnerships that we should be monitoring moving forwards?

[[00:12:38]]
Yes, it depends on their history with them. Again, you either deal with the EPC directly or ultimately, you're dealing with the electrical sub to that EPC. In some cases, the EPC picks their sub and you deal with the sub. In some cases, you work directly with the EPC. Some of the bigger players, the Graybar, the Wesco, the Rexels, some of the stronger regional guys, they have relationships with EPCs. If you've done work with them, another segment that kind of is adjacent to this is power plants. There's a lot of gas turbine power plants going up to support all the electrical demands, and it's a similar type cycle. You put a branch or trailers on site and you provide the electrical materials, they could have hundreds, sometimes thousands of electricians on these job sites, so you want to bring the material to the site. Again, there's Ts and Cs involved, there's liability involved, but the relationship, if you provided a service on one of their jobs and you did a good job for them, they know that and they remember that. You can build a relationship and a reputation for providing good support on a large construction project like this, so a lot of it is reputation and past experience with that EPC or that electrical contractor or whoever you're dealing with.

[[00:14:12]]
For distributors such as Wesco, what would be the KPIs in order to assess or measure reputation and history? What would be indicative of really strong vs weak performance? Do you think Wesco has some of the stronger relationships with EPCs and electrical subs in the industry?

[[00:14:38]]
Yes. I mean it's really for the EPC or the electrical contractors, they want you to have the material they need when they need it. There's a lot of forecasting that goes into it. In some cases, we would even do the material takeoffs to determine what the bill of material is and the types of products they're going to need and when they're going to need them, so if they've got hundreds of electricians on a job site and they're coming to your location on-site there to get their material, they want you to have their material. That's probably the biggest performance indicator, but in a lot of cases, you have to have people available 24/7. If something happens, they need you to be there or to be able to respond quickly to get them products that they need.

Inventory management is a big deal on these projects, and you got to make sure you're kind of protected on that. You don't want to get stuck with a bunch of dead inventory at the end of the project because these contractors aren't the best necessarily at forecasting everything they need. You need to have some pretty good processes in place to make sure that you're not bringing in a bunch of material that's going to turn out to be obsolete. I'll tell you the other big one is just the credit. I mean you're extending a lot of credit to these big companies. There's a lot of dollars, and that's it's never easy, but it's easier for Wesco, a Graybar or Rexel to do that as big as they are and the resources they have than it is for smaller distributors.

[[00:16:23]]
Could you discuss the specific equipment or electrical content that Wesco would be selling to data centres? We touched on transformers and switchgear being one of the primary constraints in the current market, but what equipment for data centres would be typically sourced through distributors vs directly from the OEM, either to the operators or the builders?

[[00:16:47]]
Yes. I think that the stuff that's going to go direct is the larger switchgear transformer substations, that type of stuff, but you get into like wire and cable, cable tray, if it is busway that they use instead of cable, typically, that would be sold direct, but it could go either way. We've done projects where we've supplied the busway, but even if the busway itself comes in direct, there's a lot of accessories that go with the busway that the distributors could sell. There's connectors, there's smaller transformers and switchgear inside the building, grounding material, raceway, racks. When you get into that white space, racks and networking, fibre security, and that's just like on the construction side, and then all of that stuff as the life of the data centre goes on, they may have to do upgrades or enhancements and that type of stuff. There's all kinds of connectors and products that would go into that. Again, that's where Wesco and a Graybar have an advantage because they're into that space, that white space. I'm sure like all the Nvidia racks and those types of things are going direct, but there's a lot of widgets as we'll say that you need to connect all that stuff, fibre cabling and those types of things, and then just the grey space, safety switches and transformers and all the lighting and things that go into the building itself, circuit breakers, that type of stuff needs MRO down the road, whether it's just normal MRO or they're doing an upgrade or an enhancement to the facility.

[[00:18:58]]
Are there any material or structural risks to major distributors such as Wesco that major procurement budgets could shift from the distribution layer to direct, either permanently or during the supply chain tightness period that we see during the data centre build-out?

[[00:19:15]]
Yes, that's always a risk. Again, a lot of the bigger electrical switchgear and so forth goes direct anyways, either because it's just too much of a technical sell or the manufacturers want to be the ones driving that relationship. A lot of it shifts direct to the job site, and there's not really a need for material handling, which is the role of the distributor. There's always a risk with that automation like Rockwell Automation. Again, Wesco is a big Rockwell distributor, as was Rexel. There's always that kind of push-pull between the manufacturer and the distributor on whether something goes direct or not. I would say there's more of a trend towards more direct sales from some of the bigger switchgear and automation manufacturers. For instance, in Europe, all that stuff goes direct. They don't go through distribution on a lot of their switchgear and so forth, so that's something that's a little bit unique to the United States. Yes, that's certainly a risk for some of the bigger stuff.

Again, a lot of these manufacturers, if it involves material handling or staging or just-in-time inventory and even the hassle of the receivables and the Ts and Cs, again, with some of these EPC guys, a lot of manufacturers don't want to deal with that either, so that's a role that the distributor carries. They carry the receivable risk, they carry the inventory risk and some of the other liability that goes with it. That's where our distributor adds value and all the on-site stuff that we talked about, if they have an on-site branch or trailers or whatever, manufacturers aren't going to do that type of stuff. There's still a lot of value that distributor provides, but whether the manufacturer goes direct or not is always bit of a battle between manufacturers and distributors.

[[00:21:33]]
What do you think are 1-3 primary factors? Is this determined on the builder-operator side of the equation or the OEM side of the equation? Is it a case of saying, "We have capacity, we're going to go straight to you instead of through a distributor?" Where does that decision sit? Where does it happen? Are there any types of projects or procurement characteristics that would typically make you say, "This might shift more towards direct than through the distribution layer"?

[[00:22:12]]
A lot of it might be how technical the product is, the higher technical aspect of it, the manufacturers want to stay involved directly and the distributor… I mean, distributors can have engineers and provide technical support, but it's usually not the major technical stuff, so manufacturers would want to go direct there. I mean just pricing, obviously, if you run something through distribution, there's an extra layer of margin in there and profit that the distributor gets, so they really just have to provide value. If the distributor doesn't provide value in any way, then there is a high risk it's going to go direct. Again, the technicality of the product, whether the product needs any type of staging on-site or material handling on-site, and then I think in some cases, like I said earlier, the receivables factor or the Ts and Cs, some manufacturers would rather deal with the a distributor that they're used to dealing with day in and day out vs an EPC or somebody that maybe they aren't used to dealing with direct from a Ts and Cs liability standpoint, those types of things.

[[00:23:35]]
How should we think about the typical electrical content revenue for a data centre of 50MW, for example, that would be recognised from Wesco through the distributor layer vs what would go direct to OEM? I'm trying to understand whether it's, say, USD 50m, and typically 25% OEM, 75% Wesco – or whoever the distributor is – or whether it's differentiated across several different distributors on mega hyperscaler projects. How does that work, quantitatively?

[[00:24:19]]
I mean I couldn't give you exact percentages or anything. I mean obviously, the heavy dollar stuff is going direct in more cases on the electrical side. Again, I don't know if you're talking about the grey space when you get into the Nvidia racking and all that type of stuff, I'm sure all that stuff is probably going direct. There's also electronics distributors that could be in the mix here, but typically, the stuff that goes direct is higher dollars, so I can't really give you a percentage. I'd be guessing, and I don't want to give you something that I'm not 100% comfortable with.

[[00:25:01]]
Why do you think the market has differentiated between grey and white space for distributors, to the point where we have different distributors acquiring to lead in each different segment? Are there any differences in going to business between the grey and white space, or could you see a player such as Wesco – which you said dominates in that white space through acquisition – also dominating the grey space?

[[00:25:30]]
Yes. I mean in the white space and in some cases, like automation, like, for instance, Rockwell Automation, they have a franchise for one distributor in a given market territory, so it's an exclusive franchise with the manufacturer. They're probably the most exclusive, let's say, because they only provide one distributor in a market area. A switchgear guy like Eaton or Schneider or ABB, they could have a half a dozen different distributors in the same market area that could sell their products, so there is some exclusivity, and when you get into that white space, that's a whole different set of manufacturers than the traditional electrical grey space. If you're not in that business significantly where you buy lots of volume from those white space suppliers, you're just not in that game or you're not in the game competitively, and that's where Wesco and Graybar really rise to the top because they've been in that business for a long time. They have established relationships with the suppliers. They're heavy volume with them.

Again, somebody like Rexel, they bought Talley not too long ago, but before they bought Talley, Rexel just really wasn't much of a player in that space. You really need to have the manufacturer franchises, the manufacturer relationships and the product expertise. I mean there's technical expertise that distributors have in all these areas, automation, switchgear and the white space type products, so that's where Wesco and Graybar really have an advantage.

[[00:27:19]]
You mentioned the acquisition into the white space for Wesco to dominate there. Do you think there's any kind of electrical content or adjacent equipment that Wesco isn't currently offering that it could acquire into to drive stronger growth in the long term? Do you see any areas that aren't offered in the portfolio that you would expect from competitors or that you could see synergies with?

[[00:27:45]]
Yes, I'm sure there are some things that they could do there. They have made some acquisitions, and I'm not an expert in that white space suppliers, but I do know that Wesco has made some acquisitions in that space over the years, so I'm sure when you get into that white space, there's all kinds of product companies that are in that space that they could buy to enhance that. When it comes to the grey space, not really other than just buying up other electrical distributors to expand their scope. It would really be in that white space where the acquisition activity would happen.

[[00:28:36]]
Do you think the advent or the progression towards 800V direct current data centre build-out changes the product set that Wesco can sell to data centres? It's my understanding that this could or should shift need and demand for low-voltage, as well as UPS [uninterruptible power supply] and PDU [power distribution unit] needs.

[[00:29:00]]
Yes. I mean that changes the game somewhat. I mean the DC products, and it really impacts the switchgear manufacturers the most. They're the ones that are challenged with coming up with those products and solutions. The distributors don't manufacture anything, so they're there to support and sell those products once they're designed by the Eatons of the world, but it changes those types of products like busway that will shift more towards busway vs cable and cable tray, let's say, to bring the power into the facility and to supply the power, the circuit breakers, there's all types of different products that are related to that, and a lot of those products are more expensive. They're a little more exclusive, so with that could come more, for instance, inventory obsolescence risk, but yes, I mean, it's certainly an opportunity that distributors will be able to take advantage of for the products downstream from the major switchgear.

[[00:30:19]]
Do you think it leads to less, more or the same dollar amount of products sold by Wesco to data centres, if you were to average it out?

[[00:30:27]]
I would say it's going to be higher because those products are more expensive, a little more exclusive. Yes, and again, that's evolving. I don't think that's really going to hit for a couple of years yet from what I understand. We'll just kind of have to see how it comes out. The way technology is progressing and the types of products that they're going to come out with, things could change over the next 3-5 years for sure.

[[00:31:01]]
We touched on the disintermediation and go-direct risk. How should we be thinking about that risk in the context of some of the lower-value equipment potentially getting reprioritised or shifted out of data centres? I've heard of solid-state transformers as a much more expensive transformer, but replacing a lot of the low-voltage equipment. Is there a risk that, as that comes to market or those types of equipment come to market, that'll be exactly what we're talking about in terms of products that do go direct?

[[00:31:36]]
Yes. I think that's certainly a risk. You got people like Enphase that have been traditionally involved in the solar… Like SolarEdge, Enphase. We used to sell them for solar applications, which is a DC application also, and some of their stuff would go direct, some of it would go through distribution. Yes, that dynamic, again, is always there, and it's always going to be an evolving situation. I don't know that we can say exactly what's going to happen, but as those products may get more technical and the distributor adds less value, then you run a risk of the manufacturers going direct.

[[00:32:18]]
You brought up Enphase and SolarEdge. It was almost surprising to me when they were both rolling out projects on the solid-state transformer side, but then they were competing against a competitive set that they'd never worked against before – the legacy elephants in the room such as Eaton, Schneider and major electrical OEMs. Over the next 3-5 years, do you think there's room for Enphase and SolarEdge as suppliers in this market, or do you think Eaton, Schneider and the legacy major OEMs will push them out in the long term?

[[00:32:58]]
Yes, I'm sure there's going to be a niche offering for them there. It'd be interesting to see if they just get acquired by some of those bigger guys. If they have a better mousetrap in that area, it wouldn't surprise me if an Eaton or an ABB or Schneider or somebody just sucks them up and acquired them just for that opportunity. Yes, it depends on their technology and whether they can get there faster than an Eaton or a Schneider.

[[00:33:33]]
What are your thoughts on Enphase or SolarEdge's engineering and R&D teams? Are they the best of the bunch when it comes to quality and new product introduction, or would you say that Eaton or other competitors typically focus more of their R&D dollars in that direction?

[[00:33:49]]
Yes. My limited experience with them is more just in the solar and their products for the renewable energy, the solar panels and their transformers and products and solar, so I can't really speak to their R&D and so forth. Obviously, the major switchgear guys are huge companies with a lot of R&D. I'm sure the Enphases and SolarEdges of the world are good at what they do, but they're not near the size, scope or scale of the big guys.

[[00:34:30]]
Do you think data centre customers are a lucrative and attractive customer set for Wesco overall? Why or why not?

[[00:34:39]]
Absolutely. I mean it's their biggest growth segment. I mean data centres are closing in on 20% of Wesco's business. They've got a whole division organised around data centre services. It's their highest-growth segment. The margins are good. Wesco is kind of divided up into the traditional electrical and then their CSS, they call it, I believe, which is where the data centre segment sits, and then they have their utility business. The utility business is a lower margin of the three than the ESS and the CSS are the higher-margin business. The CSS is the highest growth segment they have right now. By far, data centres… Again, it's not just Wesco, anybody who's in this space who can sell into data centres, that's where the growth is.

[[00:35:43]]
You mentioned Wesco's roughly 12% market share leading the distributors. How would you assess the competitive landscape? Do you think the company is poised to gain, maintain or lose market share over the next 12-36 months?

[[00:36:03]]
Yes. I would say, I mean, being the largest, obviously, they got economies of scale. They got a lot of branches. Typically, the electrical distribution market would grow roughly with GDP. Things like data centres have kind of accelerated that to where it's growing faster than GDP, so they're overall, probably mid-single-digit growth rates, say, 5%, 6%, 7%, but the data centre business is going to be growing 20-30%. Wesco is in a very good position to capitalise on the data centres, which is the largest-growth segment in the industry right now. They do have other, what I would call, strategic advantages in the marketplace. They're very strong in national accounts or global accounts, which are typically industrial OEM customers that have multiple locations that want to deal with one distributor across all those locations. I used to compete with them quite a bit on the national accounts arena, and they're a formidable competitor in that area. They're one of the leaders, so they do have other areas that they're strong at besides data centres. They've always been strong in just general commercial construction.

Obviously, commercial construction since COVID, you don't have a lot of office buildings being built and those types of things, so that's been kind of dampened somewhat, but the data centre business specifically is more than made up for that loss. More manufacturers come back and build plants in the US, that's going to go right into Wesco's sweet spot too, for construction and MRO, those types of things.

[[00:38:08]]
If we think about 12% overall market share for Wesco, how would you expect the data centre vs utility market share to trend going forwards? Should we think about, say, 20% of data centre projects vs 6% of utility projects going forwards? How do you think about that share evolving across different segments?

[[00:38:37]]
Yes. I can't really say what their specific share is in those areas. I mean I do know they're strong in utility, too. Similar to the CSS, utility is a kind of a beast on its own. For instance, Rexel wasn't really involved in the utility. Again, you have to have specific franchises with manufacturers to do the utility. There's specialty utility distributors out there, Wesco being one of them. Again, it's a little lower-margin business, but sooner or later, we've got to upgrade our grid to support all this power and selling to the utility companies, it's a differentiator and a competitive advantage that Wesco has. There's a barrier to entry there, so even though it's a lower-margin business and probably a heavy inventory-related business, so it ties up cash. There's pluses and minuses to being in that business, but it's something that the Wesco is pretty strong at and not a lot of competitors in that space, so they could certainly be in… I can't say what their market share is, but it's probably pretty high in that space when it comes to distributors.

[[00:40:06]]
Are there any other competitors taking non-data centre market share? Could you see Rexel or other competitors increasing their competitive pressure in non-data centre markets, or are there any specific disruptors or distributors that you're seeing win more projects than normal?

[[00:40:28]]
Yes. I think, for instance, Rexel is probably… I'm not sure if it's Rexel or Wesco, there's not specific data, but they're the two largest Rockwell Automation distributors. I mentioned Rockwell earlier. That's a very lucrative franchise to have. It requires a lot of investment in people and technical experts. Rockwell is very demanding in that area. I mean, you basically have the only franchise in an area, so I'm not going to call it a monopoly, but if you're the only one franchise, you're the only one that could sell Rockwell Automation, they're the number one automation guy in the country, so that's a very lucrative franchise to have, and I know Rexel, most of their acquisitions lately have been Rockwell distributors. You can tell what they think of that business, if that's where they're putting their acquisition dollars, so they're making inroads in that area, which primarily supports the industrial OEM segments. All the distributors have their strengths in construction. A lot of that depends on the local branches and the relationships they have with local contractors. There's a lot of local and regional distributors that are very strong in that area, too.

Typically, we call them the local independent distributors, whether they're just in a given market or multiple states, they're usually more stable. They don't have as much turnover in their management. They have more established relationships, so they can be very strong players. Those are the guys that the Wesco and the Sonepars and the Rexels are looking to acquire because, again, like I mentioned earlier, it's a very fragmented industry still. If you look at Europe, I mean, Sonepar and Rexel have like 40% market share each. I mean, they dominate the European electrical distribution. Globally, Rexel and Sonepar are the two biggest, but you go into the US, and again, the biggest guy only has 12% market share, so you can imagine what the Sonepars and the Rexels, they're just licking their chops on trying to get acquisitions in the US to consolidate that market. It certainly has been happening, but with size comes advantages with buying power with manufacturers, franchises, the ability to do national accounts, if you have branches all over the country, that makes you more of a good partner for a company looking for a national account partner. Those types of things, I think that the bigger guys are just going to keep getting bigger, both organically and through acquisition, and that's Wesco, Sonepar, Graybar and Rexel.

[[00:43:26]]
If we think about supplier share at specific dealers or distributors, is there an element of exclusivity? If you're an OEM such as Eaton or GE Vernova, what factors will determine whether you funnel most of your product or a specific amount of your product to Wesco vs competitors? What determines those factors?

[[00:43:56]]
When you look at that, really automation and switchgear are the most exclusive, I'll call it, typically. There are some other guys that have a little more exclusive distributor channels. There's national relationships for sure. I mean, ABB they acquired the GE switchgear business. GE Supply back in the day, that's all we sold was GE switchgear and then ABB bought them, or GE Supply was pretty much exclusive with one manufacturer, but a lot of the distributors, Schneider is very exclusive also. They typically have fewer channel partners as they'll call them in a market, but that may be two or three ABB and Eaton, they might have more, but they typically only have one or two national partners, and they're trying to get the distributors to be exclusive with them, not too many are really going to be exclusive. They're going to at least have two switchgear manufacturers just to have a competitor in there, but it depends. Rexel dealt with all four of them. We had Schneider, we had ABB. We had very little Siemens. I would take them out of the equation for the most part, but ABB, Eaton, Schneider are the major guys. Siemens is a major player. They just weren't with Rexel very much. There's always jockeying that goes into that, but there's really no switchgear guys that are 100% exclusive with anybody. Rockwell is probably the only one that does that.

[[00:45:57]]
Would it be fair to say that you don't expect more exclusivity as we go into 2027-28? Would it surprise you to see a higher amount of exclusive contracts across electrical equipment?

[[00:46:12]]
I think it could happen as the big guys do more acquisitions. For instance, if Wesco has partnered with Eaton as their primary switchgear guy and Wesco goes and buys somebody that was partnered with Schneider, Schneider might say, sorry, we're not going to sell you anymore, so that business could convert over to Eaton. I think it would happen more through distributors doing acquisitions. Not that there aren't distributors that switch manufacturers on their own, but there's a lot of pain involved with switching manufacturers, especially switchgear guys. You have a lot of inventory, you have to figure out what to do with. You have technical specialists typically that are kind of focused on one manufacturer and now you're telling them to go work with another manufacturer. There's a learning curve there for your people. It's not an easy thing to switch out a switchgear manufacturer like that. I've been through that multiple times, and there's risks. There's risks, too. I mean end users and contractors have preferences in those things, too. You may lose customers because they prefer that switchgear guy more than they prefer you as a distributor, so there's risks involved with that. Again, I think it would happen more through acquisitions that distributors make.

[[00:47:48]]
Is the market or procurement competitiveness for electrical equipment different when considering newbuild greenfield data centres vs repair-and-replace work throughout the data centre's life cycle? Would new distributors or OEMs be brought in within 3-5 years in when equipment needs replacing? How does that typically work? Is that a lucrative and sticky long-term relationship?

[[00:48:12]]
Yes. I mean, obviously, for the OEMs to get their product in the building, and that's why the margins are a lot thinner in new construction. If I'm an Eaton and I want to get my switchgear in a facility, it's going to be tighter margins going in for the distributor and the manufacturer, but they both know that when they need to replace a circuit breaker or a switch or a transformer, they're typically going to go back to that OEM, so that's where the higher margin is on the MRO side. Now the dynamics of purchasing definitely change because when you're in new construction mode, again, you've got an EPC, you've got probably a large maybe travelling electrical contractor doing the new build, but once that building is operational, you don't know who they're going to pick as their electrical contractor that's going to do the maintenance and repair in the facility. That more than likely is going to be a local guy who may have a relationship with a local distributor, and that's where some of the smaller distributors could play. If they have the right franchise for the OEMs that are in that building, they could have a relationship with the local contractor who's going to be doing the maintenance in that facility, and then all of a sudden, that becomes an opportunity for them.

A lot of it depends on relationships and who really ends up being the decision-maker on the purchasing of that MRO material in the facility. Some industrial companies like to do that on their own. Some of them just outsource it, they just hire electrical contractor and they let the contractor decide who they buy from. It just depends on how they decide to manage that procurement decision-making.

[[00:50:10]]
Let's think about volume and the pricing environment for electrical equipment overall that would flow through a distributor such as Wesco. What equipment is seeing stronger vs softer vs steady demand in 2026 relative to 2025? What do you think volume will look like in 2026-27 relative to previous years? Should we be thinking about double-digit volume growth and double-digit pricing growth sales action, or how should that shake out?

[[00:50:50]]
Yes. I mean there's an estimation of the electrical distribution total market. There's a company called DISC that puts out projections multiple times through the year. They have 2026 at USD 180bn, I think going up to USD 190bn next year, closing in on USD 200bn the year after that. It's a large market total. I think things like switchgear, like we talked about earlier, I mean, there's a reason there's long lead times on all this stuff because the demand is there for it. Those product categories, the growth is only limited by their ability to make the products, so that's a huge piece of it. When you get into the other segments, the industrial segment it's probably growing mid-digit growth right now. Again, as more manufacturing comes back to shore into the United States, that should have more new construction on those, let's say, a regular plant or manufacturing plant and then the MRO that goes with it. Commercial construction, again, is traditional commercial construction has been slower growth as of late.

Again, a lot of that since COVID and the impact of work from home on commercial office buildings and those types of things. You used to get either new construction of buildings like that or what they call TI tenant improvement work. Maybe as people go back to the office, obviously, there's a trend there. I don't know how far it will go back, but you still have probably more commercial office space than you need, so there's not a lot of construction going on there, and then residential construction, obviously, has been slower as of late. I mean if that ever picks up, that could be a boom for electrical distributors that are focused on that area. That would help out probably more like a Rexel. Rexel does more small, medium contractors. A resi boom, for instance, in Florida and areas like that would certainly help distributors that are focused in that area. Overall, I think the electrical industry is a strong industry. It hasn't been a high-growth type segment until the data centres kind of fuel that growth.

Again, it would kind of plug along with GDP typically, low-to-mid-single-digit kind of growth, but data centres have really changed the game. Again, nobody knows if and when things are going to slow down or what could cause that if the hyperscalers ever start cutting back on their CAPEX, that could put a wrench into things really for the whole country and a lot of industries, but certainly the electrical industry. I'll give you an example. Back in the early '20s, Amazon was building distribution centres like crazy, and in my case, in my region with Rexel, we used to sell to the conveyor manufacturers that went into those distribution centres. We used to sell to the contractors that were building those distribution centres. It was tens of millions of dollars of business just for my region of Rexel. All of a sudden, Amazon stopped, they realised they were overbuilding distribution centres, and they just stopped. They put them on hold, they cancelled them.

We lost a lot of business overnight because of that, so it's a smaller-scale situation than data centres, but in some cases, it's similar. I mean it was a heavy growth construction with Amazon distribution centres that basically came to a halt. Is that going to happen with data centres? I doubt it. They're going to always need them, but stuff like that happens, and it can throw a major wrench into the volume.

[[00:55:14]]
How would you assess the stability of Wesco's non-data centre business compared to those of peers? If, hypothetically, you were able to strip out the data centre CAPEX, perhaps there would be a major stepback over the next 2-3 years. How healthy would you expect Wesco's cash flow to be, based on its other non-data centre customer cadence?

[[00:55:39]]
Strong. Again, they're the largest guy out there. They don't have a huge market share advantage, but they're in all the segments. I mean they can participate in industrial MRO, they're in national accounts, they're in commercial construction. They sell the EPCs. They do some residential, they have a large network of branches. They have strong supplier relationships. They're one of the big guys and the big guys are the ones that are going to continue to grow both organically and through acquisition.

[[00:56:19]]
How does Wesco's national and global account strategy differ from major peers and competitors of a similar size? Is that an area that the company typically excels in, or is somewhere where you would say Rexel, Sonepar or Graybar have stronger national accounts and retention strategies?

[[00:56:42]]
Yes. I mean it used to be back when I was with GE Supply. GE Supply, Wesco, Graybar were probably the three major players in national accounts. Again, they are national players, so they had locations all over the country. Somebody like Sonepar, they're an accumulation of a bunch of acquisitions. They typically wouldn't all be on the same ERP system. They didn't necessarily coordinate. They would buy distributors and let them keep doing their things, so they didn't have as much coordination nationally. The Wescos, the Graybars. Rexel, ever since Rexel bought GE Supply, they hadn't, I would say, invested in the national accounts as much as GE was, but they're still a strong player, but Wesco has always been one of the stronger players in national accounts. When I talk about national accounts, it could be oil and gas companies, automotive companies, steel companies, any type of large industrials that have multiple locations across the country. Those are your big national account-type opportunities, so Wesco is certainly a major player in that area.

[[00:58:01]]
We will conclude the Interview there. Thank you for your insight, and thank you for joining Third Bridge's Interview today. It's been a pleasure.

[[00:58:10]]
All right. Thanks. I appreciate it. Enjoy.

[[00:58:13]]
Have a good rest of your day.

Transcription ends at 00:58:17 of the recorded material