3 M&A Considerations for Expanding Distribution Businesses

Digital transformation, changing demographics and brand reputation are key factors to include in the M&A conversation.

Despite the ups and downs of international trade negotiations, market uncertainties and economic shifts, 79% of businesses expect M&A activity in the U.S. to increase this year. Ongoing industry-wide challenges such as digital transformation demands and expanded customer service expectations are leading more distribution business leaders to consider consolidation in order to remain competitive in an increasingly disruptive landscape.

To maintain the highest standard of customer service and experience while ensuring a positive return on investment, distributors should consider these three factors when discussing M&A strategy among leadership teams:

1) Partners who will support a digital transition. Digital transformation spending will hit $2 trillion by 2022. Sectors such as manufacturing and distribution will be heavily impacted. Businesses should consider looking to merge with and/or acquire partners that will be valuable in supporting the transition into a new era. Ensure you are maintaining a pace of market-competitive innovation — without disrupting the customer experience and, in fact, enhancing it.

A strong M&A strategy includes searching for possible partners that are proven to excel not only in implementing and innovating digital business practices but also in leveraging data and analytics to support your team’s decisions. These considerations will ensure you are making a logical, calculated and valuable business deal. 

2) Changing demographics and customer demands. Millennials are now the largest generation in the workforce and it is evident that with a younger generation of consumers, purchasing habits are drastically changing. Any discussion surrounding M&A should take this population segment into consideration and use it as a driving force for expansion. Have the leadership team evaluate if the business is appealing to millennials while also staying true to its mission and objectives. 

The majority of businesses are owned by baby boomers. One-third of them are expected to transition the ownership of their business within the next five years. With more businesses in the midst of succession planning, it is an ideal time for distributors to consider corporate expansion and targeted market consolidation. 

3) Building brand trust and reputation. Fifty-four percent of customers have higher expectations of customer service today than one year ago. But when it comes to meeting customer needs, distributors are often faced with labor shortages and restricted budgets that can make it difficult to do so. Expanding businesses through M&A is one solution for distributors to offer a stronger set of established brand-name products and customer service resources to better serve their customers and develop a strong reputation in an increasingly competitive landscape. 

While it is important to establish cross-business trust with all partners involved in an M&A, your customer’s trust in your brand is becoming more important than ever. Growth and diversification can lead to significant challenges in maintaining exceptional customer service. A successful M&A strategy will consider digital transformation, industry innovation and customer demands by enhancing your own corporate brand rooted in trust. This trust should be at the forefront of M&A strategies to lead distributors and ultimately their customers into the next phase of modern distribution management.

Baby is the Chief Executive Officer at SureWerx, www.surewerx.com.

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