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In a wide-ranging podcast interview with MDM, Brent Grover, bestselling author of The Little Black Book of Strategic Planning for Distributors, addressed the current market for sales and acquisitions as well as factors that could soon cause disruption. He shared advice on how to maintain relevancy and the best ways for distributors to position their firms for long-term success. Here are the highlights. For the full podcast, go to mdm.com/podcasts.
Most privately owned small distribution businesses that are looking to acquire another firm don’t have much experience with buying companies — especially not in the way that big enterprises do. That’s where Brent Grover steps in, to act as their acquisitions department. In doing so for more than 20 years, he’s kept a close eye on the market. Although he predicts the market started to peak a year ago, Grover says the growth streak, much to his surprise, continues.
“It’s sustained itself for a long time and I believe one of the reasons is there are so many buyers out there on the so-called institutional side, the private equity fund-type buyers, who have a tremendous amount of committed capital from their investors,” Grover says.
Those buyers “have a lot of pressure on them” to put their capital to work purchasing wholesale distributors. Many of those purchases, Grover explains, are “bolt-on deals” for platforms already owned by private equity firms. They find value in distributors whose profits are not from gross margins, but rather fees for service and ability to perform technical functions for customers.
Looking toward the future, Grover says banks are anxious to finance deals now as interest rates remain low. Even though the Fed is planning to raise rates, he doesn’t see that affecting deals much in the near term, as it will take “a period of years” for rising interest rates to cool the market.
That said, the “black swan effect” makes the market unpredictable. For example, a potential ongoing trade war with China could quickly change the outlook, as well as other factors “beyond our control,” Grover says, such as the aforementioned interest rates, availability of capital and dry powder of the private equity funds.
“I’m a big believer that we’re in a period of disruption,” he says.
The biggest disruptor is the shift of customer buying patterns away from branch-based distributors and toward computer-based purchases from online sellers who are dabbling in the trade. The level of threat from online sellers varies by industry, Grover points out. Selling to contractors, manufacturing businesses and OEM products is not as affected. On the other hand, MRO and unplanned purchases are “very vulnerable,” he says.
One way distributors can work to shore up their businesses is to take a lesson from the retail B2C marketplace in recent years, particularly the drive to streamline customer experiences by using all available data on those customers’ preferences and behavior patterns.
“How are distributors going to use data about their customers to customize the experience so they can anticipate what the customer wants? Anticipate when the customer’s machinery needs preventive maintenance or repairs? Anticipate when the customer’s running out of product? Using predictive analytics to be able to predict when they’re going to lose a customer rather than the data we have today which shows us that we lost them — and sometimes several months after we lost them,” Grover says. “There’s a lot to be done out there and it’s not going to be as dependent upon salespeople as it has been in the past.”
A “doomsday scenario” that Grover sees playing out if distributors don’t act is the aging of their sales force. If they don’t actively recruit younger people, he says, they’ll be left with a lot of salespeople who are not only a full generation older than their clients, but also will be retiring all at the same time. “I think that’s a scary thing,” he says.
In order to continue to be successful, Grover also urges distributors to embrace the role of helping their customers to be more profitable and productive. Take on a consultative role and work with clients at the C-suite level to help them realize their return on investment for services — not just products, he says.
“If it’s just a question of coming in and showing a new product that they have or bidding on bids, I don’t think that’s going to be a winner’s game, long term,” he says.
Rather, distributors should invest in analytical tools that improve awareness of what is going on within their companies, so they can make strategic decisions about where to invest their money or which customers or segments to walk away from if needed.
“This is all the analytics game that we’ve been talking about for the last five years,” Grover adds. “Some distributors are still not ready to play it and I think they’re making a big mistake. Those are not the guys that are going to do the best.”
Listen to the full interview with Brent Grover at https://www.mdm.com/podcasts.