Ann: Acquisition of Morsco and Capital Raising Presentation, page-73

Reece's moats in Australia that may be transferable to the US:
- Experience in staff training
- Experience in customer service
- Strong relationship with major suppliers
- Superior online capability and experience (Max app)

Competitive advantage in Australia that will not be transferable to the US:
- Extensive property portfolio
- Weakened major competitor in Australia (Tradelink) vs Stronger & Bigger competitor in US (Ferguson)
- Direct supervision, experience and knowledge of Australian plumbing market of the Wilsons

I'm sure there are others that I miss, feel free to contribute to the above two lists.

Reece has been a cornerstone investment in my portfolio for many years. This latest development certainly caught me by surprise. I never expected that they will make the plunge into the US market. The level of investment risks has certainly increased accordingly.

The question that I've been asking myself this past few days is why now? Could Reece make this same move a few years ago for a cheaper price?

Considering that in the past few years, Reece has been busy shoring up its Australian businesses by purchasing Actrol, Metalflex, Viadux and Heatcraft NZ, as well as building a network of distribution centres all around the country, the answer is probably NO.

The next question that I asked myself is should they just stay in Australia and be a giant in a small pond?

Well, if we are happy with 5-10% growth every year, then they probably should stay in Australia/NZ. But clearly the Wilsons have a bigger ambition than that. They know that they have entered all of the adjacent industries and that there is no more major acquisitions that they can do without hopping into a completely unrelated industry.

The last question that I asked is, should they wait for a few more years before making the move?

For the past few years, Ferguson, Morsco and others have been in a race to acquire smaller competitors. Had Reece waited for a few more years, the consolidation process will be much further down the track and it will be even more difficult for Reece to gobble up an even bigger target. Therefore, I can sort of understand why they make the move now.

Reece's Australian businesses are in the strongest and healthiest state that they have ever been. They won't have any difficulty in servicing the debt. And based on the Wilsons' past behaviour after a major acquisition, I'm pretty confident that they will attempt to pay down the debt as quickly as possible.

Integrating a new subsidiary and changing the culture of the company on the other side of the planet are the mammoth tasks facing Reece now. Success is far from guaranteed. Many mistakes will be made. However, I'm willing to give the Wilsons the benefit of the doubt until I see evidence to the contrary.

I will end this post with a link to an old article that shows how a plumbing wholesaler business from Burwood, VIC, Australia, came to lead the world in so many aspects. This 17-year old article gave me the confidence that Reece will be able to transfer its magic across the Pacific and as a result, I will get to enjoy many more decades of growth.

https://www.supplyht.com/articles/84670-darlington-on-showrooms-showrooms-down-under