Digitalising Distrelec – Back to the future, carve-out, transformation, success
How can you spin out and grow profits ten-fold in three years? A carve-out and holistic operational transformation involving end-to-end digitalisation saw profits grow ten-fold at Distrelec, with AURELIUS selling it to RS Group plc in Q2 2023 and generating super returns for investors.

The three-year stewardship saw the business grow to serve 180,000 customers across 19 countries, with two-thirds of its revenue derived from digital channels as Distrelec became a leading pan-European multi-channel platform for B2B customers in the MRO business for electronic components.

The AURELIUS and Distrelec partnership highlights a number of successful endeavours:

• Deal signed on 23rd of December after only a couple of weeks as AURELIUS’s conviction in its proven strategy enabled efficient diligence and negotiations
• AURELIUS stood behind its commitments even on the verge of the pandemic abyss and closed the deal one day before the COVID-19 lockdown.
• In doing so, the AURELIUS team travelled in and out of Switzerland in under 24 hours to close the deal and go straight to quarantine thereafter
• Faced the challenge of stabilizing a newly carved-out unit during lock down with no ability to physically meet the team or travel on site
• Embarked on a holistic transformation journey to develop a scalable and customer-centric omnichannel platform with data-driven decision-making
• Empowered the organization, retained existing and attracted new key talent while optimising support functions and performance marketing
• Ultimately doubling the business’s range through clever ‘virtual’ inventory and improving the webshop
• After the successful transformation attracted strong interest from competitors, leading ultimately to a sale of Distrelec for 11x to industry peer RS Group

Founded in 1973 in Switzerland and having moved to Manchester (England) in 2016, Distrelec was surviving but not necessarily thriving. EBITDA for the European B2B distributor of electronic and technical components was positive but languishing in the low single digits. When a carve-out was agreed with AURELIUS in 2019 from Swiss-listed Dätwyler Group, Distrelec’s sales and marketing were beset by a lack of data to drive customer segmentation and manage performance, while the tech stack was underinvested and overloaded.

These challenges faced AURELIUS when the deal closed in early 2020, but the story dates back further. Agreement was reached late in the evening on 23 December 2019, following thorough diligence conducted at impressive speed from the AURELIUS team, experienced in realizing complex carve-outs.

If the holidays were a fun hard-stop, the period around completion was less merry: closing took place as the pandemic took hold, forcing the team to travel to Switzerland on the Sunday before lockdown and then endure three weeks of quarantine once home to ensure the process suffered no delays. It was clear Distrelec’s ambitious team could clearly thrive if given the right tools and guidance by the AURELIUS Operational Task Force, including additional leaders in the c-suite to help drive the vision.

AURELIUS set out to draw on its experience with carve-outs and operational transformation to build a standalone, scalable and customer-centric omnichannel platform for the business, with end-2-end digitalisation at the core. This included a six-pillar digital booster programme, ultimately leading to a 90-strong digital team across data, BI, product development and performance marketing. The firm also set about devising a go-to-market strategy and a core focus on B2B clients within the MRO segment. Customers were grouped based on buying behaviour and customer lifetime value, with data driving this important area. A centralised CRM would orchestrate channel activities, with a hybrid supply chain model ensuring efficient product availability.

“Our partnership with AURELIUS truly transformed Distrelec. The carve-out – unachievable on our own – really invigorated the team, which is now adept at collaborating across functions and feels engaged and valued. The digital overlay propelled us forward and made us more capable of scaling,” said Ben Scholey, Chief Information Officer of Distrelec.

Building a foundation fit for the future: three-year transformation

The impressive aims required a solid foundation for growth, so in 2020 AURELIUS set out to stabilise the business through a reorganisation to drive improvements in performance. With multiple complex carve outs already completed successfully, the AURELIUS Task Force, together with the Distrelec team, conducted an IT carve-out. The project took place alongside optimising performance marketing, right-sizing support functions and inventory/assortment, team reorganisation and implementing a customer-centric framework.

Getting this right was key to progressing towards getting Distrelec ‘fit for the future’ in 2021, which involved digitalisation, team-building and a focus on operational excellence. Customer-oriented road-mapping and building up a strong product and engineering team would be a big part of 2021, while the pandemic incidentally helped to expedite the cultural transformation as no one could travel.

The teams’ third year together was about establishing a firm path back to growth, based on customer-centricity and underpinned by the digital transformation AURELIUS had spearheaded, which ushered in key to drive results. The end of the year saw Distrelec more profitable and looking ahead to sustainable growth.

Driving value: customer centricity and digital enhancement

Of course most users’ entry point to a company is its web presence, and AURELIUS’s key value driver (KVD) framework focused on customers so a smooth site was of paramount importance. Distrelec’s webshop was on SAP Commerce Cloud v2 hosted by SAP on Microsoft Azure infrastructure. Getting this right mattered: over 20 local languages and currencies made shopping more user friendly, while a redesigned checkout process led to a 6% reduction in checkout abandonment, resulting in an extra EUR 2.5m of revenue yearly.

During AURELIUS’s three-year stewardship, Distrelec became a digitally-enabled business with a full assortment broadening customer choice and growing market share. Market drivers included a shift towards electrification and renewable energy, 5G infrastructure, smart factories and IoT. Cleverly extending Distrelec’s range through ‘virtual’ inventory (stock held by suppliers) saw Distrelec’s offering more than double, growing from c. 168k products in 2021 to an estimated 500k in 2025, over half of which is virtual. All of this helped gross margins to improve by an impressive 3.7 percentage points.

Overall, AURELIUS´s operational specialists created significant value through digitalisation and enabling the business to prosper by optimising the end-to-end customer experience alongside other key success factors of assortment, availability, a customer-centric sales force and digital order interfaces. Today, state-of-the-art IT systems, strong capabilities in e-commerce and business intelligence, and a highly qualified digital team form the backbone of the company. Alongside this success, a strong corporate culture was established, with 97% enjoying their employment. Keen interest from RS Group led to an attractive off-market deal in Q2 2023, with Distrelec sold for a consideration of €365m, equating to just under 11x adjusted EBIT. (Read more here)