The 2020 Mid-Year Economic Update_long

2020 M&A Roundup: Year to Forget Brings Memorable Trends and Deals

MDM looks at five themes that emerged across distribution M&A in 2020 and recaps some of the biggest deals of the year.
2020 M&A Roundup

Like everything else in the world, the M&A landscape was upended in 2020 due to the coronavirus. When COVID-19 began disrupting the economy back in March, deals were delayed or scrapped altogether, creating a months-long lull as companies focused solely on their own operations.

But activity picked up beginning at the end of the second quarter and has accelerated ever since, with some of the most high-profile deals in history happening across distribution in a year unlike any other. As part of our look back at 2020, MDM has compiled five M&A themes that emerged in the industry and also listed some of the biggest deals of the year.

M&A Returns with a Vengeance

After a pause due to COVID-19, deal volume returned in earnest at the end of the second quarter and into the third quarter, with activity accelerating to close the year. Some of the larger consolidators in distribution — both on the financial and strategic side — made plays or announced their intent to step off the sidelines and steer their capital toward prime targets. The move that kicked everything off was WESCO’s $4.5 billion acquisition of Anixter, the roots of which date back to late 2019. The deal survived the pandemic and closed in June. A flurry of deals, though none as sizeable, followed in the ensuing months making 2020 a somewhat decent year for M&A. Look for this trend to continue in 2021.

PE Firms Deploy Dry Powder

Private-equity firms made headlines in the latter half of 2020 for the fat stacks of cash they invested in distribution, especially building materials and construction. Here are a few examples (all of which are linked below). Clayton, Dubilier & Rice bought HD Supply’s White Cap division for $2.9 billion (and also distribution ERP provider Epicor for a staggering $4.7 billion). Clearlake Capital Group L.P. acquired PrimeSource from another PE firm, Platinum Equity. Affiliates of American Securities LLC paid $1.4 billion for Foundation Building Materials Inc. and $850 million for Beacon’s Interior Products Business. And Bain Capital Private Equity bought US LBM Holdings.

Building Materials Sector Blows Up

In addition to the mega-deals mentioned above, consolidation was rampant across the building materials sector, with both strategic and financial deals regularly being announced to close the year. The strategic highlight was HD Supply Holdings Inc.’s return to its roots when The Home Depot bought the building products distributor for $8.7 Billion. In 2007, Home Depot had sold HD Supply to private equity, and HDS went public in 2013, operating on its own for the last seven years but slowly shedding business division until it went back to its core focus — and back to its original owner.

A New Deal-Making Landscape

While due diligence became harder to navigate thanks to social distancing and reduced air travel, companies that saw deals as advantageous to their businesses found a way to get them done over Zoom, Teams or Webex. However, this new dynamic did cut down on “de novo,” or new, transactions where the parties didn’t know one another. “In this current environment, conducting due diligence is harder, and assessing individuals and personalities is harder,” Reed Anderson of Houlihan Lokey told MDM for a July report on M&A. “If you are a strategic buying a smaller player in your space, you can take comfort in generally knowing what that target has been doing, and you have personnel capabilities on your team to make sure that M&A transaction works well post-close.”

Valuation Becomes More Challenging

With lockdowns in place and many companies’ revenues stunted due to COVID-19 restrictions and the general economic slowdown, valuations became increasingly difficult to gauge. Was a company’s struggles — or its successes (think PPE) — due to COVID or something else? “I definitely would not say that a business that experiences challenges right now is going to face a distressed valuation,” Nick Troyer of Baird told MDM. “On the other end of the spectrum, however, I do believe there will be a premium for businesses that outperform through this crisis. When we’ve analyzed valuation multiples over time across distribution sectors, we clearly see the value in downside protection. The stronger performers are also likely to be the first to come back out.”

Top Deals

Here are some of the most important, market-shifting deals of 2020, as reported in MDM throughout the year. (This is just a sampling of acquisition activity presented in ascending chronological order; to read all of our M&A coverage, click here to visit our monthly roundups.)

Join MDM in February for a Virtual M&A Summit

MDM is hosting a Virtual M&A Summit on Feb. 25, 2021, that will tap into these trends and more. We’ll soon be sending out the full agenda and speaker lineup, but it will be an informative and engaging look at the entire M&A landscape, including considerations for buyers and sellers, advice on performing due diligence in a pandemic and a macro look at which sectors are projected to see the most consolidation in 2021.

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