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This is a part of the 2015 Distribution Trends Special Issue. The annual feature was researched and written by MDM editors based on interviews with dozens of wholesaler-distributors, as well as industry experts and manufacturers. MDM also conducted a survey of its readers to uncover the trends outlined in this issue.
2015 Distribution Trends Special Issue
Diversification is critical in a volatile market. Growth at the beginning of 2015 was softer than anticipated, due in large part to the volatility in the oil and gas markets and unusual weather. As a result, distributors are aggressively expanding their product offerings and target markets. The stability of food and beverage and the growth opportunities seen in safety have made them some of the most attractive targets for industrial distributors. Aerospace was also listed as an area of opportunity. "At the end of the day it's all about diversification," says Don Fritzinger, president of Singer Equities, Pearland, TX. "If you're diversified geographically, you're diversified with your product mix, you're diversified with your services, you can generally steer around some of those icebergs."
Human resource issues – from hiring to retiring – remain a top concern for distributors, as the existing workforce continues to age. Of particular concern is how to transfer the knowledge of industry veterans to a less experienced workforce. But the flip side is also true: How can the knowledge that the new workforce has regarding their generation be transferred to the veteran workers? Generational shift isn't occurring only in the employee base; it is also happening to the buyers. This recognition contributes to a lessening of the "us versus them" mentality between the generations that marked the past few years.
Distributors are becoming more laser focused on training for new and existing employees. The combination of skills that make a perfect candidate are very difficult to find. "The education system coupled with the service industry training is not preparing people to work in the distribution industry," noted one respondent to the 2015 MDM Market Trends survey. As a result, distributors are looking for training programs that can provide the necessary skills at an affordable cost. Some are still hesitant because they see millennials as more willing to jump ship, and they view the training investment as "sunk cost" when that happens. But most see it as necessary, and some recognize that continued investment in training is preventing some of the turnover they've seen in that generation in the past. Millennials are interested in continuous learning – and are more likely to jump ship if they feel that isn't happening in their positions.
M&A activity is as strong as ever and more competitive than ever. Because of available cash on the part of private equity and a desire to diversify and accelerate growth on the part of strategic buyers, the two types of acquirers are more actively competing with each other for attractive targets. In addition, the reasons for acquisitions – particularly on the part of strategic buyers – is shifting. The acquisitions have also trended toward more transformational acquisitions, says Guy Blissett, wholesale distribution specialist leader for Deloitte Consulting LLP. It's not just about getting into new geographies of product lines. Acquirers are also considering the IT platforms or other unique service offerings that a company brings with it.
The big keep getting bigger … but the midsized companies are growing faster. Average growth for the Top 10 Industrial Distributors was 7.2 percent in 2014; average growth for Nos. 11-40 was 12.8 percent. Regional economic influences, such last year's growth in oil and gas in Texas and North Dakota, helped boost distributors that are active there but had less of an impact on the larger national players who faced slower growth in some of the other geographies. The corollary is that those regional players who benefited last year are facing challenges this year with the steep decline in oil prices.
E-commerce is now considered "table stakes." As the customer demographic shift continues, demand for online transactions has also increased. Customers don't want to deal with a salesperson for a routine reorder, and distributors shouldn't want to spend valuable and comparatively expensive sales resources processing those routine reorders.
Merger & Acquisition highlights in 2014:
Sonepar continued its acquisitive streak, completing dozens of acquisitions globally, including Industrial Distribution Group, No. 22 on the 2014 Top Industrial Distributors list. Other North American acquisitions included: IESA in Costa Rica; Melexa in Colombia; Platinum Electric, Streamwood, IL; and Dixon Electric and MGM Electric Limited in Ontario.
Acklands-Grainger acquired WFS Enterprises, Ontario.
HD Supply sold its hardware unit to Home Depot, its primary customer for products from that unit.
Applied Industrial Technologies had an acquisitive 2014, with a particular focus on expanding services to oil and gas markets in the U.S. and Canada – including the acquisitions of Knox Oil Field Supply, San Angelo, TX; Reliance Industrial Products, Nisku, Alberta; Texas Oilpatch Services, Houston, TX; and Ira Pump & Supply Co. Inc., Ira, TX. Applied also completed acquisitions in Mexico and Australia in 2014.
Kaman Industrial Technologies' M&A activity in 2014 was focused on targeting growth opportunities. Kaman acquired fluid power distributor B.W. Rogers and is using the company as the platform for its fluid power business. The distributors also sold its Mexican business unit.
Wurth Group acquired Timberline Fasteners, Commerce City, CO.
Fastenal acquired aerospace distributor Av-Tech Industries, Arlington, TX.
BlackHawk Industrial acquired Marshall Tool, Salt Lake City, UT.
Get more distribution M&A news at www.mdm.com/acquisitions.
Average growth for companies on the Industrial Market Leaders list: 11%