September 18, 2024
Kichler Acquisition Complete, Merger with Progress Confirmed
Can this merger make 1 + 1 add up to more than 2?
Kingswood Capital Management, a Los Angeles-based private equity firm, announced the completion of its acquisition of Kichler Lighting from Masco Corporation for $125 million.
The deal, previously disclosed on September 3, also confirms the merger of Kichler with Kingswood's existing portfolio company, Progress Lighting. The combination of these two established brands creates a major player in North America’s residential lighting sector, positioning Kingswood to potentially capitalize on their bolstered market position.
Kichler, founded in 1938, and Progress Lighting, founded in 1906, are both well-known for their offerings in the decorative residential and light commercial lighting markets. The merger integrates their respective distribution networks, which serve homebuilders, trade professionals, retail outlets, and e-commerce channels. The go-to-market strategy will focus on leveraging both brands, enabling the company to expand its presence across the residential lighting landscape.
Financial Context
Kichler’s $125 million sale price, a sharp decrease from the $550 million that Masco paid for the company in 2018, reflects a major decline in the brand's market value. At the time of the original acquisition, Kichler had annual revenues of approximately $450 million and employed 700 people. Progress Lighting, purchased earlier this year by Kingswood for $131 million, had projected sales of around $190 million for 2023.
Kingswood’s combined investment of $256 million in Kichler and Progress solidifies its footprint in the residential lighting sector. This move comes amid a broader strategy by the firm to consolidate key players and increase competitiveness in the market.
Will 1 + 1 equal 1.5? … or 2? ... or 3?
Private equity firms don't typically acquire lighting companies out of passion for the industry. Instead, they do so with a clear investment thesis: generate profit. Whether it's through a quick turnaround—where the firm holds the company for just a couple of years—or a longer-term strategy, the focus is always on increasing the value for an eventual sale.
In the case of Kingswood Capital Management’s merger of Kichler and Progress Lighting, there may be short-term disruptions, potentially leading to a temporary dip in revenues as operations are integrated. However, the real objective likely revolves around creating operational efficiencies at scale, which could make the combined entity more profitable. Private equity investments are often more concerned with improving profitability than boosting revenue, and this case is no different.
With $256 million invested in these two established brands, the question remains: who will be the next buyer? Whether the strategy is to streamline and flip or hold for a longer horizon, the outcome will depend on how effectively Kingswood can drive value through the merger. The final chapter of this investment will be written when the combined entity is sold—and that’s where the true measure of success lies.
Management Strategy
Sean Veit, the former Chief Executive Officer of Progress Lighting, will lead the combined entity as CEO, while Vijay Shankar, former President of Kichler, will take the role of Executive Chairman. Both Veit and Shankar will serve on the company’s Board of Directors, highlighting the collaborative nature of the merger.
“This merger marks an exciting milestone for our customers, employees, and key stakeholders. We are thrilled to support our customers with an expanded portfolio of high-quality lighting solutions and enhanced service capabilities,” Veit said. “With this merger, we aim to preserve and enhance the distinct positioning that both Progress and Kichler brands hold in the market.”
Shankar echoed these sentiments, adding, “The combined talent and resources will better position us to serve our customers. Our leadership team is committed to working through the integration process to ensure our customers benefit the most.”
Market Implications
It remains uncertain how this merger will truly impact distributors, showrooms, and other partners who currently rely on either one or both brands for their product offerings. With Kichler and Progress both serving the decorative residential and light commercial sectors, some industry professionals have raised questions about potential redundancies in product lines and distribution strategies.
The merger invites a comparison to other overlapping consolidations, such as the Marriott and Starwood merger in the hotel industry, where some customers saw the combination as a benefit, while others voiced concerns over the potential for reduced options and increased market dominance. For lighting distributors and showrooms, the future partnership dynamics between Kichler, Progress, and their resellers will evolve over time.
Michael Niegsch, a partner at Kingswood, expressed confidence in the merger’s long-term potential. “The combination of the Progress and Kichler brands provides the business with unique, complementary strengths across all channels and end markets,” Niegsch said. The firm believes that merging these two long-standing brands will allow for better alignment of their resources, enhancing service delivery and expanding market reach.
