Did COVID-19 Turn Your Business into an Acquisition Target? - Modern Distribution Management

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Did COVID-19 Turn Your Business into an Acquisition Target?

While the COVID-19 pandemic has slowed M&A to a crawl in distribution and most sectors, companies that chose to hunker down rather than innovate during the pandemic could be targeted by savvy strategic and financial buyers once activity resumes.

Distributors that haven’t innovated during the pandemic but instead decided to hunker down and hope for the best will not only lose share to their competitors but could also find themselves as acquisition targets once M&A activity resumes in earnest.

The point emerged during the most recent installment of MDM Live, held Friday, May 29. The event, moderated by MDM CEO Tom Gale, featured a panel of Mike Marks and Mike Emerson of Indian River Consulting Group and John Gunderson of MDM Analytics.

Also seeNavigate the ‘New Normal’ By Innovating Your Sales Model

True, M&A has all but dried up over the last couple of months. Companies are holding onto their cash, the credit markets have tightened, and social distancing has stymied due-diligence procedures — only those deals near the finish line have closed.

In April, only one distribution deal was announced with Winsupply’s acquisition of May Supply. That was it in this space until a pair of deals hit the wires over the past week: DGI Supply acquired Production Tool & Supply and Mars Supply acquired Machine Tool Supply Co.

But don’t be fooled by the dearth of deals. Savvy strategic and financial buyers are scouring businesses for distressed assets and will soon be tossing a lifeline to those that are struggling, albeit at prices much lower than what might have been offered during a sound economy. After all, it’s easier to buy than build, especially when valuations have dipped.

And while the MDM Live panelists didn’t dwell on M&A — that’s a topic to be covered in a future edition of MDM’s weekly live series on how distributors are responding to COVID-19 — they did offer a few nuggets on some expected acquisition trends in the post-coronavirus landscape.

No Other Choice?

The coronavirus pandemic could reveal a lot of harsh truths about how companies failed to respond to the crisis. And those that are sinking — with no real recovery plan in mind — might have no choice but to seek the financial backing of a strategic or financial partner through selling all or part of their company.

“I think there are going to be a lot of people who wish they had sold their company last year,” said Marks. “There are going to be, I think, a fair number of asset sales when people get in trouble and they’re just going to be looking to find a way out. People aren’t going to want to sell them, and these multiples we saw before are going to be interesting footnotes in history that we’re not going to see again for a long time.”

Gale noted that the COVID-19 pandemic will likely be another critical inflection point for the industry, just as other economic crises have sparked M&A activity. One specific distinction at this particular time: Those that adapted their sales models will stand apart from those that stood pat and hoped the crisis would pass quickly.

“In the last five years or so, the use of analytics and pricing has accelerated, and that’s been a huge deal in terms of the opportunities for M&A activity as well,” Gale said. “I think this next frontier in terms of the consolidation is the sales models in place at companies. It’s another reason why we’re spending so much time on this topic, and why it’s such a critical time to start to transition the sales process.”

Look for more on M&A, which could accelerate coming out of the COVID-19 crisis, during future installments of MDM Live and in future editions of MDM Premium.

Join us on Friday, June 5, at 2 p.m. EDT for this week’s MDM Live, featuring more discussion about how distributors are responding to COVID-19, with conversations with Barry Litwin, CEO of Systemax, parent of Global Industrial; and Jonathan Byrnes, MIT lecturer and founding chairman of Profit Isle, a Saas-based profit acceleration company.

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