Why are some relationships exclusive and others not?

That's an excellent question. Some Original Equipment Manufacturers (OEMs) choose not to be exclusive, either due to corporate policy or strategy. In some cases, they might have two distributors. For instance, when I took over the Wencor distribution business, Timken had about 10 distributors. Over time, we demonstrated that this approach was detrimental to them as their distributors were engaging in price wars, continually requesting lower prices from Timken to secure sales. This was impacting Timken's margins. During my tenure, Timken reduced its distributors from 10 to four. However, as a distributor, the ideal scenario is to have exclusivity as it allows you to control the market. With Adams Rite, we managed to secure exclusivity with Kirkhill and Korry Electronics. Many of the TransDigm brands also allowed us to secure exclusivity, subject to various performance commitments, as they are sole source, meaning there's no like-for-like replacement. Nonetheless, achieving exclusivity as a distributor is generally quite challenging.

If Wencor does 50% exclusive and 50% non-exclusive, could they potentially integrate their 50% non-exclusive range into Seal Dynamics as well? Or would they merge those companies? What do you think their plan is?

That's an excellent question. Historically, on the PMA side, they've allowed the operating units to function independently. However, on the distribution side, that approach doesn't make sense. I believe it's only a matter of time before they merge. Wencor's distribution footprint is 20 miles outside of Atlanta, they have a sizable warehouse. They have small storage spaces in Istanbul, Amsterdam, and Singapore, and a modest warehouse in Miami. Other than the Atlanta facility, Heico has the same footprint. I assume that, within the next 18 months, they will consolidate the distribution business into Heico's existing facilities, assuming they have the capacity. This makes sense from both a synergy and cost-to-serve perspective. Sometimes when distributors merge, it creates a conflict if they have two exclusive lines that compete against each other. One or the other might say it won't work because they don't trust that they will get enough attention. But in this case, because Wencor is primarily bearings, seals, a bit of filters, and Adams Rite, it's mostly going to be complementary.