Broadens DSG’s Industrial Technologies’ Focus

Conference Call Today at 11am ET; Acquisition-Related Materials on Website

Distribution Solutions Group, Inc. (Nasdaq: DSGR) (“DSG” or the “Company”), a premier specialty distribution company announced today that it reached a definitive agreement to acquire HIS Company, Inc., (“Hisco”), a leading distributor of specialty products serving high growth industrial technology applications. In connection with this transaction, DSG will combine the operations of TestEquity and Hisco, creating one of the largest suppliers serving the electronics design, production, and repair industries. For fiscal year ended October 31, 2022, Hisco generated sales in excess of $400 million and adjusted EBITDA of approximately $29 million.⁽¹⁾

Hisco, an employee-owned company, operates in 38 locations across North America, including its Precision Converting facilities that provide value-added fabrication and its Adhesive Materials Group that provides an array of custom repackaging solutions. Hisco offers customers a broad range of products, including adhesives, chemicals and tapes, as well as specialty materials such as electrostatic discharge, thermal management materials and static shielding bags. Hisco also offers vendor-managed inventory and RFID programs with specialized warehousing for chemical management, logistics services and cold storage.

Bryan King, Chief Executive Officer and Chairman of the Board of DSG, said, “We are very excited to announce our plans for this strategic acquisition which we expect to be accretive on an adjusted basis starting in 2023. Hisco is a strong business with niche market leadership positions, a strong growth and return profile, and an outstanding management team that we believe will thrive as part of DSG. The combination of TestEquity and Hisco will take a “best-of-both” approach in terms of people, capabilities, and strategies. While our industrial technologies focus will benefit most from this combination, we are also excited about how Hisco is expected to expand DSG’s commercial opportunities and durability, enhancing our organic growth rates and providing further scale to the overall DSG platform.”

“The addition of Hisco will meaningfully expand the product and service offerings at TestEquity, as well as all of our operating businesses under DSG,” said Russ Frazee, Chief Executive Officer of TestEquity. “With the addition of Hisco's product lines and value-added capabilities, we are able to offer customers a more comprehensive solution for their electronic assembly requirements. We look forward to working with the Hisco team to bring increased value and offerings to our combined customers, suppliers and stakeholders.”

“This transaction is the result of decades of hard work on the behalf of our employee owners,” said Bob Dill, Hisco’s Chief Executive Officer. “It’s also a recognition of Hisco’s deep industry relationships, innovative customer-centric solutions, and comprehensive capabilities that Hisco has developed over the course of its history. Looking ahead, the combination of TestEquity and Hisco will allow the combined business to build on our complementary capabilities and further enhance the value that Hisco, TestEquity and the DSG family of companies provide to its customers and partners.”

Acquisition Terms and Financing

In connection with the transaction, DSG has agreed to pay $269.1 million at closing, with a potential additional earn-out payment of up to $12.6 million, subject to Hisco achieving certain performance targets. DSG will also pay $37.5 million in cash or DSG common stock in retention bonuses to certain Hisco employees that remain employed with Hisco or its affiliates for twelve or more months after the closing of the transaction.

DSG anticipates funding the transaction using a combination of its expanded committed credit facility and approximately $100 million of equity to be raised in a rights offering to existing stockholders. Luther King Capital Management and its affiliates (“LKCM”) currently own approximately 77% of DSG’s outstanding stock and have indicated an intention to fully subscribe for their pro rata portion in the rights offering, as well as for their pro rata portion of any rights remaining unsubscribed at the completion of the subscription period. The Company anticipates that after giving effect to this combination its net debt leverage on adjusted EBITDA will be between 3.25x to 3.50x at the time of closing.

The transaction is expected to close in the second quarter of 2023, subject to regulatory and customary closing conditions.

Conference Call to be Held Today, Friday, March 31^st at 11:00 AM ET

A conference call to discuss this transaction has been scheduled for today at 11:00 AM ET. Call in information can be found below. Webcast information and conference call materials will be available in the Investors section of DSG’s website at https://distributionsolutionsgroup.com/investor-relations/.

Today’s call-in information:

Toll Free: 888-506-0062

International: 973-528-0011

Participant Access Code: 641202

Replay of the call will be available until Friday, April 14, 2023, by calling 1-877-481-4010, replay code 47947.

⁽¹⁾ See GAAP to non-GAAP reconciliation attached.

About Distribution Solutions Group, Inc.

Distribution Solutions Group (“DSG”) is a premier specialty distribution company providing high touch, value-added distribution solutions to the maintenance, repair & operations (MRO), original equipment manufacturer (OEM) and the industrial technologies markets. DSG was formed through the strategic combination of Lawson Products, Inc. (“Lawson Products”), a leader in MRO distribution of C-parts; 301 HW Opus Holdings, Inc., conducting business as Gexpro Services (“Gexpro Services”), a leading global supply chain services provider to manufacturing customers; and TestEquity Acquisition, LLC (“TestEquity”), a leader in electronic test & measurement solutions.

Through its collective businesses, DSG is dedicated to helping customers lower their total cost of operation by increasing productivity and efficiency with the right products, expert technical support and fast, reliable delivery to be a one-stop solution provider. DSG serves 110,000 customers in several diverse end markets supported by more than 3,100 dedicated employees and strong vendor partnerships. DSG ships from strategically located distribution and service centers to customers in North America, Europe, Asia, South America and the Middle East.

For more information on Distribution Solutions Group please visit www.distributionsolutionsgroup.com.

About TestEquity

TestEquity^® is a leading distributor focused on providing the largest and highest quality selection of test and measurement equipment and solutions, electronic production supplies, and tool kits from its leading manufacturer partners supporting the technology, aerospace, defense, automotive, electronics, education, and medical industries. TestEquity also designs a full line of the industry’s highest-quality environmental test chambers. Serving electronic design and test engineers as well as maintenance technicians, industrial manufacturing assembly and the telecommunication repair community, TestEquity features more than 250,000 products from over 700 manufacturer brands. TestEquity continues to benefit from ubiquitous electronification of all types of products across most industries including IOT, EV, and 5G. For more information, visit www.testequity.com.

About Hisco

For over 50 years, employee-owned Hisco has been a leader in supply chain solutions. Hisco is a specialty distribution company serving the electronic assembly, aerospace and defense, medical and other industrial markets. Hisco delivers documented value creation to its nearly 10,000 customers through quality products, process solutions and cost savings. Hisco also offers specialized warehousing for cold storage and vendor managed inventory services. For more information visit www.hisco.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended, and the “safe harbor” provisions under the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. The terms “aim,” “anticipate,” “believe,” “contemplates,” “continues,” “could,” “ensure,” “estimate,” “expect,” “forecasts,” “if,” “intend,” “likely,” “may,” “might,” “objective,” “outlook,” “plan,” “positioned,” “potential,” “predict,” “probable,” “project,” “shall,” “should,” “strategy,” “will,” “would,” and other words and terms of similar meaning and expression are intended to identify forward-looking statements.

Forward-looking statements do not relate to historical or current facts and are only predictions and reflect the views of the Company as of the date they are made with respect to future events and financial performance. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. The Company gives no assurance that any goal set forth in forward-looking statements can be achieved and cautions readers not to place undue reliance on such statements, which speak only as of the date made. These statements are based on the Company’s management’s current expectations, intentions or beliefs and are subject to assumptions and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Factors that could cause or contribute to such differences or that might otherwise impact the Company’s business, financial condition and results of operations include (1) unanticipated difficulties or expenditures relating to the acquisition of Hisco by the Company (the “Transaction”), (2) the failure to complete the Transaction on the proposed terms or anticipated timeline, (3) the inability to obtain, or delays in obtaining, required approvals under applicable antitrust legislation, (4) the occurrence of any event, change or other circumstances that could give rise to the termination of the definitive agreement to acquire Hisco, (5) difficulties integrating the business operations of the Company and Hisco, which may result in the combined company not operating as effectively and efficiently as expected, (6) the Company’s ability to achieve the synergies contemplated with respect to the Transaction, (7) the failure to retain key management and employees of Hisco and its subsidiaries, (8) unfavorable reactions to the Transaction from customers, competitors, suppliers and employees, and (9) the possibility that certain assumptions with respect to Hisco’s business or the Transaction could prove to be inaccurate. In addition to the factors identified herein, certain risks associated with the Company’s business are also discussed from time to time in the reports the Company files with the U.S. Securities and Exchange Commission. The information contained in this press release is as of the date indicated above. The Company assumes no obligation to update any forward-looking statements contained in this press release as a result of new information or future events or developments.

Non-Solicitation

This press release shall not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any states or jurisdictions in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act or an exemption therefrom.

Non-GAAP Financial Measures; SEC Regulation G GAAP Reconciliations

Some of the financial information and data contained in this press release relating to Hisco, such as revenue and Adjusted EBITDA, have not been prepared in accordance with GAAP. DSG believes that these non-GAAP financial measures provide useful information to management and investors regarding certain financial and business trends relating to Hisco’s financial condition and results of operations. DSG does not consider non-GAAP measures an alternative to financial measures determined in accordance with GAAP. The principal limitation of these non-GAAP financial measures is they may exclude significant expense and income items that are required by GAAP to be recognized in DSG’s consolidated financial statements. In addition, they reflect the exercise of management’s judgment about which expense and income items are excluded or included in determining these non-GAAP financial measures. Non-GAAP financial measures should not be relied upon, in whole or part, in evaluating the financial condition, results of operations or future prospects of DSG, Hisco or the combined company. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, DSG’s reported results prepared in accordance with GAAP. A reconciliation of the non-GAAP financial measures to the nearest comparable GAAP financial measures is contained in this press release.

Reconciliation of GAAP Revenue and GAAP Operating Income to

Non-GAAP Adjusted Revenue and Non-GAAP Adjusted EBITDA

(Dollars in thousands)

View source version on businesswire.com: https://www.businesswire.com/news/home/20230330005814/en/