RS Group plc (RS1) Earnings Call Transcript & Summary

Hello, and welcome to the RS Group plc acquisition of Risoul conference call. My name is Alex and I will be ordinating the call today. [Operator Instructions] I will now hand over to your host, Lucy Sharma, to begin. Lucy, over to you.

Good afternoon and good morning. This is Lucy Sharma, Investor Relations for RS Group plc, formerly Electrocomponents, and I'm joined on this call by Lindsley Ruth, our CEO; and David Egan, our CFO. Earlier today, we announced an agreement to acquire Risoul. Please find on the Investor Relations section of our website, rsgroup.com, a short presentation on Risoul and the opportunity this brings RS, which we will talk through before we answer your questions. So over to you, Lindsley.

Thank you very much, Lucy, and thank you to everyone for joining this call today. I'm coming to you from Texas, I'm heading to Mexico to Risoul in a few hours for the next 2 days. Let me start, if you can see the slide deck on our website, if you have copies of it, I'm going to start with Slide 3, which talks about the acquisition of Risoul and how much we're paying the fit, et cetera. Before I do that, I just want to address for those -- because we haven't done an acquisition of this size in a while, so this might be a rather long call for some of you. So I just want to hit it upfront right now as to why now? And let me start by saying we've been working on this opportunity for 4 years. So Felipe Risoul founded the company 47 years ago, it wasn't something that he thought about transacting this with something that we unlocked. We've been building and nurturing the relationship with Felipe and his family for the last 4 years. And they're nearly 50 years old. It's a phenomenal company. We're really excited about this company. Now let me first start by saying industrial distribution in the Americas fundamentally hasn't changed in the last 30 years. We see this as an opportunity to combine our capabilities with Risoul's capabilities to fundamentally change distribution and make it much more sufficient. And I'll touch more on that. I also want to say, okay, why now? Well, automation and controls is one of the fastest-growing categories we have, as more factories become automated. If you look at the near-shoring opportunity in Mexico, they're significant. If you look at the resiliency of this market, it's quite high. We've been taking share in this area, and Rockwell is the most profitable automation and control supplier in the world. So if we move on, and I'll touch on some of these aspects through the presentation. But why now? Well, a family-run business, we believe we've got a good evaluation pre-synergies as well post synergies that we'll talk to you today. We're really excited about the business. The management team is being retained. They've got a very strong culture. It's a good financial and cultural fit. So if we move to the Slide 3, this is the largest industrial distributor in Mexico. They are the leading industrial and automation products and service solutions provider in Latin America. It is a good strategic, cultural and financial fit. In terms of the price we paid, it's $275 million, which is equivalent to GBP 228 million, and we are delighted to welcome Risoul into the group. 550 really highly skilled trained employees, low turnover. We expect it to rate significant shareholder value through cross-selling synergies because we can bring our private label products into their business. We can bring adjacent products into the business that are synergistic to Rockwell. We can develop their digital capabilities, which they don't have a lot on that front today, and we can leverage our execution expertise. So we see a lot of cross selling synergy opportunity as we move forward. And I'll tell you that acquiring Risoul, we expect it to be accretive to adjusted EPS in the first year of ownership and to exceed our group cost of capital within the first 3 years. So if you move to the next slide, if you're following the slides, if not, I'll cover it. Slide 4 talks about the reputation of Risoul in Mexico. They are a highly regarded distributor in Mexico, not only by the Mexican market, but also by Rockwell, which is 70% of the business. They are family run. It was started by Felipe Risoul. His son-in-law is the CEO of the company now. His son-in-law has been with the company, Gerardo Ayala, for 18 years. Very impressed with Gerardo. He fits into the culture of our company. And he represents that we see in an amazing leader. He's got humility, he's got passion, he's got trust with this people. They've got a strong and experienced management team that are all staying with the company, which is really important. And we spend a lot of time in the last 12 to 18 months with their management team building that relationship, not only in Mexico, bringing them to Texas and working closely with them. Risoul is the largest authorized Rockwell Automation distributor in Mexico and also Latin America. And they're ranked #10 globally. They've got the rights to distribute Rockwell's products in 5 areas of primary responsibility. So what Rockwell calls their franchise agreements are APRs, which areas of primary responsibilities. So they've got the right to distribute it within the 5 areas of Mexico, which are the main industrial areas. They recently added an APR in Spain, too, because Rockwell would like to take the Latin American model that's really technically driven to Europe to extend and grow their market share. So they've recently added Spain. You have to understand that they do -- Rockwell accounts for 70% of Risoul's revenue, very important supplier to Risoul. We have renewed the APR. So that was typically last 3 to 5 years. So we're not at risk of losing that. I had to call Rockwell this week. And over the last 18 months, I've worked closely with Rockwell at all levels. So 18 months ago, I flew to meet with the CEO and Chair, Blake Moret, in Milwaukee, we've worked closely with the executives across the board. What I'm really impressed with about Rockwell, not only the most profitable AMC, automation control manufacturer, but they're shifting to a solution sell. So they're moving from a product to a solution sell, which is exactly what we're doing as a company, too. So our path near each other. I think they've got a very impressive leadership team across the board, and we want to enhance their models. So there are things we're doing that we've been working on behind the scenes from the digital predictive maintenance is our product industrial and how we can put that together with Rockwell to have 1 plus 1 equals 3. So really important for us. The remainder, they've got 20 other major brands beyond Rockwell, which are detailed in the appendix of this presentation. In terms of just raw numbers, while at the end of their fiscal year, September 2021, the business generated $166 million revenue, $19 million of EBIT. They do come with distribution storage capabilities throughout Mexico as well as delivering their own product, and they generate 7% of the revenue from services, which I'll talk more about because I think there's a lot of ever exciting opportunities for us as we move into services with this acquisition. So Slide 5. On Slide 5, we talk about how Risoul fits into our growth strategy. This is what we talked about before, right? We want to expand our value-added services and solutions offer. Does it do that? Yes, check it. They've got control panel repair capability, build capability. We will enhance their services as we move forward. We'll add more value-added services, more digital capabilities, more maintenance capabilities. It also extends our product adjacencies. So it makes very important customer to Rockwell, but also expands into other products like wire and cable and expands into Mexico, where prior to this acquisition, we only did $20 million in Mexico. And we talked about it being a very important market, certainly from a near-shoring perspective. So it does expand our geographic coverage as well. So when we talk about acquisitions, we talk about solutions, product and geographic expansion. We hit all 3 in this acquisition. Now next, we talk about, is it a good cultural fit? Is it a good financial fit? Is it a good strategic fit? And the answer to those 3 questions is yes. So we have walked away from a number of acquisitions or discussions over the last couple of years because we didn't think it was a good cultural fit or a financial fit or strategic fit. This checks all 3 boxes on that spot as well. So did the acquisition economics stack up, absolutely. Return on investment is critical. We look to beat our cost of capital comfortably within 3 years. And there's also some ESG considerations across all work streams in our analysis. So we -- it's Mexico, we need to focus on emissions. There's other areas. They do a great job with education, working with universities, providing support of universities. So I think they do more than most companies in Mexico but we certainly will focus on ESG as we move forward with Risoul. On Slide 6, Slide 6, we really outlined how aligned we are as a culture. So just to focus a little bit more on that. Risoul, like RS, has a huge focus on health and well-being, training, driving innovation. Gerardo actually even has a -- he's set up of studio to record podcast to his people around the regions. They've got over 250 specialists with strong technical expertise. So they work closely with the universities as well. They understand their products, their customers, their suppliers and their needs incredibly well. They do provide product and service solutions with their service offer, which I'm going to go through some of the offerings. I talked about control panel, building and repair, but they also get technical training for the customers on Rockwell products. They control board and panel assembly, as I referenced, air conditioning and maintenance, specialist tool repair, smart network infrastructure. They do have limited digital capabilities, as I touched on, but we will help them develop a transactional website and help them with content, and we'll do that from our Americas business, which they will be reporting into. So with that, we believe that with the website, we'll be able to expand the number of customers that we service in Mexico and we'll provide revenue opportunity for complementary products, including our own brand, private label, RS PRO. Slide 7. If you're following along on the slides, if you don't, you can look at it later, but it just goes through the management team. Gerardo, as I said, has been with the company for 18 years, working throughout the business in all areas. He's the CEO. He joined in 2004. Supporting Gerardo is a very strong management team with a wealth of industry expertise, including many years at Rockwell. So deep understanding of the Rockwell, great relationships with the Rockwell team in Latin America and they really understand the products and the solutions quite well. They are highly focused on their people. And through the pandemic, I think they did a phenomenal job of supporting their people, working virtually where they had to protect the health and well-being and then well-being of their employees. And they've got highly engaged employees. Their engagement score is 85%, and they've got top scores in leadership performance. So it's really a dynamic environment, but it's an environment when you walk in, you get to feel that this is a special culture and they really care for their people and care for the relationships with customers and suppliers and their stakeholders. So strong cultural overlap between Risoul and RS, which is critical to us delivering the synergies that we expect. So we are very excited, and I'm excited to tell you their management team has agreed to stay. We've got plans in place. So really excited. It's a high-performance team that aligns with our purpose-led culture. So turning next slide, which is Slide 8. And I'll take a breather here for you to catch up. Slide 8, Risoul provides a significant opportunity to accelerate our growth ambitions in Latin America. So this is not the end. This is the beginning. So we're only getting started in Latin America. We see it as a huge market opportunity especially in Mexico with the near-shoring opportunity. Today, as I mentioned earlier, we've got about $20 million in revenue in Mexico under RS or Allied. And the automation and control market in Mexico, we've got valued at about $1.4 billion, and that's a number from 2019 that was reported with an 8.5% CAGR forecast over the next 10 years from 2019. So it's a region that's going to continue to grow. If you were to fly down there and look at just around the border all the building that's taking place today, whether it's automotive or other industries, there's quite a bit happening in Mexico. So we're very, very bullish on the Mexican economy over the next few years. So certainly, the benefit, as I said, from near-shoring, owing to the globalization and a greater focus on improving sustainability through reducing distances products travel because it's not very far from Monterrey where these guys are headquartered, and that's a really important manufacturing region today across the Texas border into the U.S. to be able to distribute products throughout the Americas without bringing it across from, say, China. Mexico also, by the way, has young population. And I was surprised by this with the median age of 28, which supports future growth. And I think the country is witnessing and when you go there you feel a rapid adoption of factory automation and digitization coupled with the implementation of Industry 4.0 and an expanding manufacturing sector. So quite exciting from that perspective. If you go to Slide 9, we detailed the significant growth opportunity that Risoul provides within the RS Group through revenue synergies and margin development. So combining our presence in Mexico, which we will do, is going to make a huge difference from a customer standpoint. If we take our range of complementary products, including our own brand and put it with what they have, we'll be able to drive an increased average order value, increased market share with our customers and increased revenue at hopefully a higher profit level as we move forward. And introducing some of Risoul's service solutions offering to RS America will be good as well, including some of their control panel building capabilities, repair capabilities. So for us, they provide a stronger platform for growth through really 5 key areas, developing digital capabilities to widen the customer base and broaden our product range, sales collaboration across Brazil and the RS team and our integrated supply business, which we can't leave out here because there's great opportunity for integrated supply within the Mexican market as well. Expanding the RS Group products and service solutions offered, expanding the Rockwell relationship further, which is really important. I think it's -- I'm really, really focused on building this into a significant relationship globally as we move forward and including Risoul's recent expansion into Spain, it really helps strengthen that Rockwell relationship and improving our execution capabilities to drive efficiency. So in short, on this slide, I just say we're very excited about the growth opportunity that Risoul brings to RS. So with that, I'm now going to hand over to David to talk you through the financials.

Good morning, good afternoon, everyone. So Slide 10 details the financials. The acquisition [Technical Difficulty] USD 275 million, GBP 28 million (sic) [ GBP 228 million ] is on a cash-free debt. The deal is subject to customary closing conditions in Mexico, and we hope to complete by the end of November 2022. Consideration will be funded from RS' [Technical Difficulty] with the acquisition multiple equating to circa 12x adjusted EBIT. [Technical Difficulty] so that's on a 12-month trailing basis. The multiple falls to single digit [Technical Difficulty] 3 net synergies. We see significant revenue synergies from cross-selling digit [Technical Difficulty] operational efficiencies. And the acquisition is expected to be accretive to adjusted earnings in the first full year of ownership and our return on investment exceeded the RS Group cost of capital within 3 years of [Technical Difficulty]. Risoul's adjusted operating profit margin is slightly above that reported at RS for the year ended [Technical Difficulty]. And due to some global supply challenges, there is an increased order book at this point in time, which should unwind over the next 12 to 18 months. [Technical Difficulty] sheet remains very strong. Following the acquisition, our pro forma net debt to adjusted EBITDA to March [Technical Difficulty] is under 0.8x, providing the capacity to support our growth ambitions as we [Technical Difficulty]. And with that, I'll hand you back to Lindsley.

All right. Thank you, David. Let me just summarize on the last slide. We remain focused on generating sustainable shareholder returns. And David and I and Lucy just finished an investor road show where we met with several of you on the call and lots of questions on dividends in the U.K. and buybacks in the U.S. And hopefully, we signaled that we still have a lot of opportunity to invest inorganically to drive organic growth. And for us, we are not looking to pay a low price for poorly performing businesses. We're looking to pay a fair price for well-performing businesses. And that's exactly what we have here. So why now? The opportunity presented itself, we unlocked the opportunity; we've been working on it long time; critical supplier and Rockwell, very profitable business in Brazil gives us that geographical solutions and product expansion. It's a business we've known as I said, for 4 years, and we're strategically and culturally aligned. So we do have quite a few of these that we're talking to. It takes time, especially for family-run businesses to be able to build that trust and that relationship because we're taking over something special from them, and we want to maintain the same level of discipline and care for employees that these families have for their employees for many years. So just to summarize, acquiring Risoul enables us to expand our position, execution expertise, specifically in Mexico and Latin America as well as the Caribbean and to drive cross-selling synergies across our products and service solutions offer, and we're delighted to welcome Risoul to the team. So in summary, I'd just say we're very confident that we're well positioned to deliver the opportunities available to drive profitable market share gains and attractive returns in Mexico, in Spain and throughout Latin America, as we outlined consistently with our investor event in March. So with that, if we can -- Alex, if we can open up for questions.

[Operator Instructions] Our first question for today comes from Rory McKenzie from UBS.

I have 3, please. First, can you talk about the organic growth track record of the business perhaps split into the pre-pandemic period? And then more detail on how much revenues were held back due to the supply chain disruptions? And then secondly, on the potential for revenue synergies, could you share some targets for a number of SKUs you want to bring over from the wider RS Group? I know a lot of the traditional alloyed world is AMC as well. Does that maybe limit how quickly and easily you can import new products? And then thirdly, just on kind of due diligence and risks. Now you've done 3 large deals, let's say, how quickly do you feel you can integrate this company and indeed future deals versus the past? And can you talk about what you did differently or extra in this case, given the key supplier that's involved?

Yes. So let me start, and I'll let David touch on the organic growth because I know he's got the numbers in front of him. But just in terms of backlog, they roughly had $27 million in backlog in a few months ago, of which they're waiting on products come in. So there's a very healthy backlog, healthy book to bill. The last couple of months have been quite solid for them. The demand is unchanged in terms of what they're seeing in the market and their 5 regions where they have the APRs. And Rockwell is starting to free up some of the product and starting to improve their delivery. So the outlook looks a little bit better. I'll let David touch on organic growth. But in terms of revenue synergies, let's not forget, Fort Worth is only 4-, 5-hour drive from the border. So we don't necessarily need to bring in a huge amount of stock to the warehouses within Mexico today, Rory. We can actually shift directly into the warehouse and then to customers with their own logistics network in Mexico quite rapidly. So they'll have access to more than 200,000 plus. We will not sell competing products to Rockwell, but we'll have all the synergistic products available. So they've got 18,000 parts resting on the shelf, 80,000 or so they sell, they're going to have immediate access to a couple of hundred thousand products. So it's going to be pretty significant. We have not -- we're not going to disclose at this point what we think those revenue synergies will be because it's a little too soon because we are working through integration, which we started the plans of that months ago, and that's part of the discussion that we'll have this week and next week. But I think the risks are quite low in terms of integration because we don't have a strong presence in Mexico, they become our Mexican business, and we are not the -- this is a revenue and margin synergy play, not a cost synergy play. We're not coming in looking to take out people. We just want to make sure that from an ESG perspective, we're enhancing the cybersecurity. We're bringing in the right resources. We're looking at IT, making sure the systems are protected and they're scalable. So it's really more from that perspective. And I think we're much more experienced than that today, Rory. So I think the risks are quite low on that front. And for us, it's really more about how we get the digital capabilities up and running and how we expand the customer base and how we work out the logistics to get the increased product flowing from our Fort Worth warehouse into their Monterrey and Mexico City warehouses to enhance that customer relationship and grow that market share. David, do you want to touch on the organic side?

Yes, so organic, Rory, is being typically pre [Technical Difficulty] mid-single digits. Pandemic and sort of supply chain has been [Technical Difficulty]. But then what we've also seen is the order book, as Lindsley referenced, the order book has increased. And so again, [Technical Difficulty] unwinds itself and improves, then we'll see that order book unwind as we [Technical Difficulty] customers going forward.

Rory, let me just touch on the last point of your question, which is the relationship with Rockwell. I've started 18 months ago by flying to Milwaukee and have it a one-on-one session. In fact, I was the first visitor during the pandemic to their headquarters in Milwaukee to be with Blake Moret, their CEO and Chair. And I got to tell, I mean, Blake has been there a long time, I think, since 1984. He's transforming that company, he's moving to solution sell. We're 100% aligned. I'm very impressed with him, with the leadership team he's bringing in, with the team that's been there that we've got a lot of experienced people. This is a good company. And I've known -- this is the old Allen Bradley, and I've known him for 30 years. And I started by programming Allen-Bradley PLCs in college. And this is an outstanding company, very distribution friendly. They've got a great position in the Americas in terms of market share, growing globally. We've worked every aspect of the relationship in terms of what they call market access, which is their distribution channel globally in Europe, the Americas, Latin America. We've been meeting behind the scenes under NDA with their team now for about 12 months. So we're completely 100% aligned on the direction we want to go in and how we both want to invest to enhance this relationship, not only in Latin America, but on a global basis as we move forward.

Our next question comes from David Brockton of Numis.

Two questions, please. I appreciate you just touched on how Fort Worth can help with the business in Mexico. But could you just talk around the sort of capacity within the business to continue to expand? How well invested is the platform and the DCs to serve the wider Latin American region, please? And then the second question, I guess, unrelated to the transaction today. But could you just talk about what the pipe, the M&A pipeline looks like post this deal? Should we expect a period of the gesture or a further deals possible in the near and medium term?

Yes. So on the M&A pipeline, we can't predict when deals will -- some of these deals you can't predict when you'll unlock it and when the company will be willing to sell. I will say this, we've been very clear that with the market as it is right now, if we do head into a recession, whether it's in Europe, the Americas, globally, we do expect valuations to come down. So we want to be careful, clearly, because last year's multiple is not this year's multiple. I think family-run businesses are slightly different. But for us, the M&A pipeline is quite full, and we've got lots of discussions that are taking place, but we're being cautious and David can add some color to that as well. As far as the DCs. There is room for expansion. There's room to bring in, we're looking to bring in another vertical care sell. There's not a shortage of capacity today. It's more of let's sell the product first then stock it. So we've got the product in Fort Worth. Once we get enough customer, buying product in Mexico, we can then shift that product to Mexico. As we expand into South America longer term, we'll look at both inorganic opportunity as well as maybe expansion of warehouse capability, depending on how difficult it is logistically to get products to those locations. So there will be opportunities as we move forward. We're putting a warehouse into Spain under Risoul. There will be other opportunities in the Caribbean as well. But we're not talking huge warehouses, more like 3PL locations as we move forward in terms of this operation. But we definitely have, I think, enough capacity between Fort Worth, as well as in Mexico and Monterrey to be able to double the sells that exist today without a huge incremental investment from what I've seen. David, do you want to add anything on M&A?

Just a quick [Technical Difficulty] as Lindsley said, [Technical Difficulty] but our discipline remains strong. So we will continue to [Technical Difficulty] our teams are busy, but we're going to remain very disciplined in terms of those strategic fit [Technical Difficulty] to returns. In terms of the investment, again, we factored both OpEx and CapEx investment [Technical Difficulty] as we acquire it. It's not big dollars. It's [Technical Difficulty] sensibly priced investments, both OpEx and CapEx. Some of it's incentive related. Some of it's technology related, some of [Technical Difficulty] that sort of building out those services and solutions, but it's all in the ordinary course BAU activities.

Our next question for today comes from Oscar Val of JPMorgan.

I have 3 questions. So the first one, I apologize, you might have touched on it at the beginning, but is there an earn-out or a contingent consideration for the management team that is staying on? Then secondly, just could you give a bit more color on the business model? How much is digital? Is it less digital in web shop than your historical or your existing Allied business? How does the logistics work versus Allied? And then the finally, you talk about Latin America as an opportunity. Do you see that developing with Rockwell? Or is it more organically going into new regions in Latin America?

Great questions, Oscar. So first of all, there is not an earn-out. The -- Felipe has stepped out of the business. The ownership was with Felipe and his -- Felipe's family. And Felipe has stepped out, Gerardo is running the company. What we do have though is retention packages in for all the leaders. And they're committed to the company. This is an opportunity where -- this isn't about the money for this team. This is about actually building something special. How do you take this business from $166 million to $500 million over the next few years? And how do you go do that and do it profitably. And so that's what this team is committed to do and that's what we're committed to helping them do. When it comes to digital, great question. The percentage of business is digital, 0. So they don't have a trans value. They don't do digital business now. They have some EDI transactions, et cetera. But for the most part, this is a very manual business and we think as digital capabilities are being enhanced within Mexico, it's a great opportunity for us to lead the way. Logistics versus Allied, the difference is they've got their own fleet of trucks, they deliver their own products to customers. So there's advantages and disadvantages. Disadvantages, there's some emissions and ESG and carbon considerations that we obviously have to consider. The advantages are they control the deliveries. So their on-time delivery is quite good and they do an outstanding job at delivering the customers once the product gets across the border that they receive and bring in. As far as growth within Lat Am, or Latin America, it will be certainly, hopefully, with Rockwell longer term, but also other adjacent lines and synergistic lines, and that will be a combination. Our first priority is always organic. But there'll also be some inorganic opportunities. This is a really good company. There are other good companies in Mexico that we can look at, and there's good companies in Chile and Peru and throughout South America. I would say we probably won't look at Brazil in the short term because it's very difficult to do business there. But throughout South America and Central America, let's not forget places like Panama, Nicaragua and Costa Rica, great opportunities throughout Latin America. So we're really excited about that opportunity. We've signaled that in the past, Oscar, where we talked about the importance of Mexico, the importance of countries like Germany, the importance of the U.S. and of France and Italy and of Southeast Asia. Those are areas where we're really focused geographically today at inorganic opportunities because we see long term -- potential long term over the next 5 to 10 years being pretty significant with what's happening in the world today. So that's where we're looking.

[Operator Instructions] Our next question comes from Henry Carver from Peel Hunt.

Just a couple of, I guess, the follow-ons now. But just with regard to that pipeline, is it fair to say that now judging from your comments that it is skewed towards Latin America and the near-offshoring opportunity there? Or are there -- is it sort of spread more widely globally still? And then secondly, just on the digital, I mean, clearly, a big opportunity there, but it is obviously something that is not straightforward or several companies historically have found it. It can be fairly disruptive to add digital and to integrate that, to develop it. I just wonder if you can give any sort of reassurance that, that is probably not going to be the case here and the opportunity overcomes the potential rollout issues?

Yes. So first question, in regards to the pipeline. It differs by region. So we're very regionally oriented now as they are global companies that we're looking at. So we have a European pipeline or an EMEA pipeline, we've got a APAC pipeline, we've got an Americas pipeline. It's not -- I would not say, I'd say still in the Americas, it's overweight to the U.S. There's a lot of opportunities in the U.S., but a lot of those are private equity-backed deals. And we're taking a look at them. We're being very cautious in terms of multiples and valuations and of course, looking at what's the cyclicality if there is a recession. So we're doing what you would expect us to do on that front. So I wouldn't say we're overweighted necessarily to Latin America and the Americas I say is more to the U.S. and still in Europe across the board. We're looking at more in places like Italy and France and other countries outside the U.K., Germany continues to be a focus and Southeast Asia, Australia, New Zealand. Really, it's around the world. And I think it's -- we're still taking a global view with a focus and priority still on organic growth and looking at how we can enhance that organic growth with solutions products and some geographical expansion. Digital, I think in terms of digital, we're talking less than probably a $2 million investment. We've been working on this behind the scenes for quite some time. There are distributors like DigiKey and Mouser to do a great job in Mexico on the web. So there's opportunities that we can see have been led in the electronics area by those companies where customers have adapted to the web. So being in Texas, we've got, obviously, proximity is great in terms of being able to get to their location from Dallas-Fort Worth. Direct flight to be able to have our teams work together. Obviously, skill set, in terms of language is there. So I think we're pretty optimistic. There's always a risk, but I think it's going to be something that we'll be able to resolve sooner rather later and then it's getting their sales force comfortable and getting customers to use the web other than just for research, right? So that's going to take some time to build over time, just like our own private label business. But we've been through it in other country as we've gone in the digital-first strategy, and it works. So we're confident that we'll be able to make this work.

That's great. Thanks, Lindsley. And just a very quick follow-up. When digital is sort of fully where you want it to be for Risoul? Where do you think the margins could get to for that business?

Well, from a digital standpoint, it's always going to be higher than the standard business because they're going to buy a more broad array of products and be able to buy some of the products certainly from our private label brand at higher margins.

Our next question comes from Thomas Truckle of Jefferies.

Yes. And it's Thomas Truckle here on behalf of Kean Marden. I have 3 questions, if I may. The first of which is regarding the revenue, the organic revenue growth rates mentioned mid-single digits pre-pandemic. And I noticed on the slide, there was an 8.5% forecasted CAGR. Wondering if that would be more appropriate in terms of the trajectory from here, especially as we see the order book unwind. So any thoughts on that would be appreciated. My second question is, David, I appreciate you can't say much around revenue synergies currently, but I'd be keen to know if you have any thoughts on the shape of the revenue synergies to come through in the next 3 years? Should we assume that they will be stable in each year? Or would you expect it to be a slower start and then we see those build up meaningfully in years 2 and 3? And then thirdly, just regarding Rockwell, I appreciate there's an extremely experienced management team there that have experienced from Rockwell. But is there any risk that the APRs could go to other distributors or the fact that Rockwell may just want to go direct to market?

Yes. Let me take the third one first, and then David can touch on the organic growth. By the way, the CAGR was automation controls in general, I believe, for that market at 8.5%, and David can talk touch on revenue synergy. In regards to Rockwell, we just renewed the APR in advance of the acquisition. That was something that was really important that we get done pre-close or pre-signing. We still have to go the Mexican competition period. And so we just got to wait before close. But for us, it is -- that was really important to get that done. With any supplier, it always comes down to performance. So I wouldn't say we're -- you're always at risk of losing a supplier if you don't perform. I'll tell you this right now, we are going to perform for Rockwell. They have performed for Rockwell. We're not going to do anything to stall that. If anything, we're going to do all we can to enhance that to accelerate that so that we can pick up APRs in other regions. So I think the risk is quite low with a caveat that we have to continue to perform. And you can never become complacent in this business, and you can never take suppliers for granted, which is why it was so important that in advance of this acquisition that we build a relationship, a much deeper relationship with Rockwell and have their assurance that we're not going to lose the line, which was something that was important to me and why I spend so much time investing in the Rockwell relationship and will moving forward. So I think it's a low risk. I see it as an opportunity, not as a challenge or a risk. I see it as a major opportunity on a worldwide basis. Great company, great profit, and they work really closely with the distribution channel, and they allow the distributors to make profit if they perform. So I'm really excited about the opportunity they present and have been for a while, and we've been looking at how we can work more closely with them. So this gives us a great opportunity. David, do you want to touch on the first two?

Apologies if my line is cut out a little bit. Revenue growth future high single digits [Technical Difficulty] in terms of the shape of the synergies we would expect it to sort of ramp up over the 3 years. So we will [Technical Difficulty] the greatest level of synergy will be in year 3.

[Operator Instructions] I will now pass the call back to Lucy for any questions from the webcast.

We've got 1 question that's come in saying, do you see any regional risk in Mexico? And how will the currency be managed?

[Technical Difficulty] it will be U.S. dollars and then we'll manage through hedging activities. [Technical Difficulty] but also U.S. dollars conversions in terms of any other regional risk as we see fit as we do all of our other businesses around the world and the various countries. At this point in time, the order book remains strong. The near-shoring activities are positive, and we certainly see good [Technical Difficulty] as we look forward.

I'll tell you this, and Dave and I were talking about this on our last trip there. I was in Monterrey in 2002. And then when I went 18 months ago, it was as if I was in a different city. It's just amazing the infrastructure and the build and the modernization of that area, but not just that, but Mexico, in general. If you haven't been there a long time, I think you'd be surprised that the level of automation, the level of sophistication, the level of technical expertise and competency that's being developed in Mexico. I think it's got a long run ahead of itself in terms of opportunity from a manufacturing perspective. It certainly serving the Canadian and U.S. markets as we move forward.

Alex, just to say there's no more questions online. So handing back to you.

[Operator Instructions] I think, currently, we have no further questions. So I will hand back to Lindsley Ruth for any further remarks.

Okay. Thank you very much, Alex and Lucy, thank you. I just want to say thanks to our team, our corporate development team and our team in the Americas for their hard work that they've done and due diligence and working closely. This has been a lengthy process that we've gone through and also working with the Risoul family. And with the company, they've been incredibly professional like to complement the Citi on their involvement and helping us in Mexico, a great understanding of the market. It's been a team -- a real team initiative. We've seen everything. Risoul has been very open. The family has been very open, and we're very excited about this opportunity, and I'm looking forward to be in there in a couple of hours and spending time with their leadership team across Mexico tonight and with the team at their headquarters tomorrow. So if you do have any further questions, please let us know. But rest assured, we spend a lot of time doing our work on this and we're really excited about the opportunity. And just remember, we're not done yet. We're a small player in a big market. We've got a long way to go, but we're in the right direction, and we're looking to make it happen for a better world every day. So thank you for joining us today, and we'll talk to you soon.

Thank you all for joining today's call. You may now disconnect your lines.