General Electric Buys Questron in Auction

John Wolz

General Electric Company�s GE Supply business unit won the bankruptcy court auction to acquire Questron Technology Inc.
The $89.2 million purchase price will be insufficient to cover all of the fastener distributor�s liabilities, and therefore Boca Raton, FL-based Questron�s stockholders will not receive any money. Stockholders include many fastener industry friends of entrepreneurs acquired by Questron since 1998. \
Questron and its subsidiaries filed for Chapter 11 bankruptcy reorganization on February 3, 2002.
The U.S. Bankruptcy Court in Delaware approved the cash and deferred payments bid as the highest and best offer. Completion of the sale is subject to certain customary closing conditions and is expected to close on or about May 5, 2002.
Under the agreement GE Supply will pay $86.7 million in cash upon closing, will assume certain leases, customer contracts and other agreements and will fund up to $500,000 for administrative expenses of Questron�s bankruptcy proceedings.
GE Supply will offer employment to all Questron employees and provide them with comparable benefits. GE Supply will not assume any other Questron liabilities.
GE Supply also agreed to make certain additional payments, dependent in part upon the operating results of the acquired business up to $2 million in the aggregate, with $666,667 of this amount guaranteed.
�We view this sale as a very favorable development for Questron, its customers, suppliers and employees,� Questron CEO Dominic Polimeni said.
GE Supply spokesperson Bill Gorton said GE officials could not make comments on the transaction until after the deal closes. That is expected in the second week of May.
The proceeds of the sale will be used to pay liabilities and discharge claims in accordance with the Bankruptcy Code, including the payment of a $2.5 million fee to QTI Acquisition Corp. in order to terminate their previously announced assets sale agreement with Questron and its subsidiaries.
Analysts: Questron Model Can Work
CIBC World Market expressed surprise at the GE/Questron transaction.
�Certainly GE has the deep pockets that are needed to make Questron�s concept work as we are convinced it can,� stated CIBC�s weekly distribution-oriented report. �However, there has been a good deal of speculation as to the level of commitment GE had to its supply business. While this says little about management�s ultimate plan to keep/divest the operation, it does at least suggest it is willing to grow it.�
CIBC noted that Questron is a service-based, bin-stocking model �that enjoys a rapidly growing market. Further, in good times, it can fetch margins of 10% to 15%. Thus, it provides the staid GE Supply business with a little bit of life within the contexts of those things GE seeks out � profitability service models.�
Richard Hagan of New York-based Pinnacle Capital Corporation, which specializes in putting together fastener company acquisitions, described the GE purchase as �a great deal for them.�
Hagan said Questron�s bankruptcy was �not a failure in the business plan. They couldn�t service their debt, and then they were whipsawed by the economy and customers.�
Questron �may have overpaid� for some of its acquisitions, Hagan added.
Questron faced many of the same problems as does Pentacon Inc., which announced an agreement earlier this month to de-leverage the company. Lenders will get 90% of Pentacon�s common stock, and current stockholders will be left with 10%.
If the pending Pentacon refinancing plan is completed, the company will avert a prenegotiated bankruptcy.
Last year GE almost got into the fastener industry with its proposed acquisition of Honeywell. The failed 2001 proposed acquisition of Honeywell by GE would have included a fastener element. Through acquisitions, Honeywell holds the onetime fastener distributor Maple Leaf Aerospace.
CIBC noted that Questron�s products �are almost entirely different from those peddled by GE, which is in the electrical and comm/data.�
Questron provides supply chain management and inventory logistics management for small parts commonly referred to as �C� inventory items for OEMs. Web: questrontechnology.com. �2002 FastenerNews.com