I recently spoke with the three panelists who will be on the third annual MDM Distribution M&A 2008 Update call on May 22 – Brent Grover, Jim Miller and Jon Skelly. They all described how radically things have changed in less than 12 months in merger and acquisition activity in distribution. Here are a few quick takeaways from that call.
A year ago, financial buyers were driving the market with still-high EBITDA multiples and a lot of deal activity. Activity and pricing have dropped significantly in 2008. Debt markets have tightened, and private equity has its hands tied with very different capital structures. Strategic buyers could not compete a year ago with the multiples; this year they are competitive and taking the lead on many deals.
What “good” looks like is different this year. The bar has been raised for both buyers and sellers. For buyers, the current environment is not one for “fixer-uppers.” The business has to be a high performer and clean – financially, technologically, competitively and from a management standpoint – to pass muster for tighter financing requirements. Sellers have to be well in process on the above to make the cut.
There is still a lot of money looking for a home. There are too many dealmakers, and there will be some bad deals executed in this environment because of over-promising on one side or the other. That said, well-run distribution businesses are marketable, and can still command a healthy price as there is competition, as always, for Class A businesses.
That’s the top-line summary of our two-hour Webcast on May 22. These three panelists have different and complementary perspectives that yield lots of value, no matter what your perspective. We’ll talk about Home Depot, Industrial Distribution Group and other major deals. We’ll also examine M&A activity across the major wholesale distribution sectors. I look forward to moderating this session. If you have a question you want answered, email it to me at tom@mdm.com (even if you don’t attend or if you plan to get the CD). I’ll do my best to get you an answer. I’ve found that kind of input is the best way to make these calls the most effective.
