While distributors still face major challenges from supply chain backlogs, labor and pricing strategies, the economy seemed to be the biggest topic of concern as we passed the midpoint of 2022. Commentary from the Second Quarter Baird-MDM Industrial Distribution Survey, collected in the first half of July, largely focused on softness and deceleration in customer demand in the second half of 2Q, but you wouldn’t know based on activity in mergers and acquisitions. (Read more in MDM’s 2Q 2022 M&A Report.)
After a relatively weaker 1Q, distribution M&A ramped up in the April-June period, ending 2Q with one of the biggest months in deal volume over the past two years. Covering mergers, acquisitions and divestments relevant to the distribution sector, MDM posted news of 19 deals in January; 13 in February; and 17 in March — leaving us wondering if an M&A slowdown would precede an economic slowdown. But 2Q roared back, giving us 22 deals to post in April; 19 in May; and 26 in June. New data from investment bank Houlihan Lokey indicates that M&A deal volume was down considerably across all industries; but as noted above, distribution appears to be an outlier.
What’s driving this renewed pace of M&A? We don’t like to speculate, but it would make sense that distributors, especially privately-owned firms, could be looking to spend remaining excess capital built up during 2020’s dormancy before any considerable industrial slowdown actually arrives in-full. The best time to gain market share is often during a downturn, so it will be interesting to see how the pace of M&A fares throughout 3Q if demand indeed continues to weaken from what distributors have suggested in that aforementioned commentary.
Flurry of Fastener Deals
One vertical that had particularly notable activity was fasteners, both on the distributor and manufacturer sides. In April, Brillion, Wisconsin-based Endries International announced the addition of Lynchburg, Virginia-based Old Dominion Fasteners. Two months later, the company shared the news of its acquisition of Alabama-based Store Room Fasteners. Endries has grown considerably over the past two decades, while its ownership has traded hands three times. In 2005, it was acquired by Wolseley Industrial Group; Nautic Partners bought it in 2017; and fellow private equity firm MSD Partners acquired it in 2018. Store Room Fasteners marked Endries’ eighth acquisition since the start of 2018.
Others making multiple acquisitions included BradyIFS, Imperial Dade and US LBM. 2Q’s biggest deals included Parts Town’s acquisition of Encompass Supply Chain Solutions; MSC Industrial Supply’s bolt-on of Engman-Taylor; and Woodgrain’s $350 million purchase of Huttig Building Products.