The Home Depot's acquisition of White Cap Construction Supply announced in May had a big impact on the highly fragmented construction supply arena. It has sent ripples into other sectors. Many will recall the shock waves more than 15 years ago when W.W. Grainger began acquiring select independent distributors in key markets.
Some questioned whether it was the beginning of the end of independent distribution. But while there are many fewer distributors today, the collapse envisioned by some never came to pass. So what sector HD will go after next? You can go down the list of MRO distributors who have been mentioned in this summer's rumor mill as potential targets.
So we've come from having $5-billion Grainger as the fulcrum of rumors to a $64-billion retailer. That says something about the fundamental changes this industry and U.S. markets are going through. If nothing else, it has made executives think harder about the future of their customers, competitors, and what the right response will be if the unexpected happens. That's not a bad exercise in these times.
What would happen in your market if a $500-million (or more) MROP distributor was acquired and had the capital backing of an HD? Can an HD enter industrial markets head on with any real benefits to the customer? So far, it has stuck to wrapping its arms around the complementary professional markets it has effectively built into over the past six years. A step into MROP markets would be a leap.
Consolidation will heat up again, but at lower levels than the rumor mill likes to churn. There are signs that the next six months could stall or at least flatten. That will catch some distributors who are tired in tough cash squeezes. That's a primary recipe for selling.