Twists & Turns Define 2023 Distribution M&A Landscape - Modern Distribution Management

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Twists & Turns Define 2023 Distribution M&A Landscape

Deal activity outpaces most expectations, but valuations and market dynamics have shifted dramatically from the previous two years of a hot seller’s market environment. Here are some key themes emerging for the year ahead for buyers and sellers alike.
Close-up Of King Chess Pieces On Wooden Blocks With Mergers And Acquisitions

As our team has been preparing for our 2023 virtual M&A Summit next week, we’ve had a chance to check in with our speakers and panelists. When we scheduled this for Feb. 22-23, we weren’t sure if interest rates and inflation would slam the door on dealmaking in 2023 – far from it!

It is so timely as we move into a continued volatile market environment in 2023 to evaluate the current state of M&A in distribution, regardless of the current lifecycle of your business — exit strategy options, growth opportunities, tactical and benchmarks to gauge your strengths and weaknesses against the attributes that today’s strategic and financial buyers place a premium on.

One of the most challenging aspects of the past three years for distributors has been the massive changes in workplace; it’s also challenged successful integrations after the deal is done. That’s why we’re kicking off this year’s event with a keynote and panel on how to navigate us-versus-them thinking and the importance of communication and culture considerations to a successful deal.

This will be our third M&A Summit since 2017. Our 2021 event was near the peak of a record year of M&A transactions after an initial COVID-induced slowdown. Times have changed. A lot. As MDM has reported, the back half of 2022 saw a slowdown due to economic volatility, interest rates and inflation factors, but there were still some major deals, and 2023 is off to a bang with nearly 50 transactions announced in January.

I’m incredibly humbled by the depth of experience and generosity of our speakers and panelists. I’m hosting two fireside chats: Motion’s Randy Breaux will share an update on the industry-changing acquisition and integration of Kaman Distribution Group a year ago. And John Wiborg will share how Stellar Industrial Supply has grown strategically through 11 acquisitions over 15 years. See the full agenda here.

We have six panels covering every angle of distribution M&A — strategic, financial, advisory, tactical, ESOPs, integration — with leaders from MSC Industrial, Winsupply, Core & Main, Turtle & Hughes, Nichols Paper, Kodiak Building Partners, US LBM, The JIAN Group, Palmer-Donavin, Border States, SBP Holdings, Blackhawk Industrial and Supply Chain Equity Partners.

And we have a few tactical sessions — how to position for private-equity investment (Raymond James), strategic due diligence (EY-Parthenon), and mid-market valuation fundamentals (Brent Grover).

Market Dynamics in 2023

Today the distribution M&A landscape is more complex and nuanced than a simple buyer vs. seller market analysis. Some of the themes next week will be on the continued pace of activity by well-capitalized strategic distributors. Many deals are incremental add-ons, but there have been some notable exceptions. Creativity will be another theme — in financing and deal structures. As will be the rise of Family Office investors as an emerging trend, and the need for potential sellers to adjust valuation paradigms based on the weighted average cost of capital.

We’ll hear experts from a range of investment bank and private equity dealmakers who cover every part of the markets and distribution sectors, including Raymond James, Brown Gibbons Lang & Company, R.W. Baird, Houlihan Lokey and more.

Even if you are not considering a near-term exit strategy, or to grow through acquisition, I highly recommend you attend this event (you’ll have on-demand access to the individual programs post-event for reference or have a schedule conflict). Over more than seven hours of sessions in these two days, you’ll get a number of benchmarks and reality checks for how you and your team are (or aren’t) building the long-term value of the business.

If you have an interest in growth through M&A, here’s an example I like to share. One of our attendees in 2017 (a company with about $75 million in revenues) took the information from that M&A Summit back to his team. Leveraging private-equity investment, the company — through acquisition — has grown to more than $300 million over five years and is well-positioned for further growth. That’s just one example of the value the insights from these deeply experienced presenters will be sharing.

I hope you’ll join us next week!

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