Even as uncertainty continues over the pace of pandemic control and economic recovery, the first month of 2021 is out of the gates with a blast of M&A deal announcements. That’s on the heels of a blistering fourth quarter of deals, with MDM reporting 34 deals in December alone (see Senior Editor Eric Smith’s recap here).
As much as we work to avoid prediction and hyperventilation, there are red flags and high-wind warning indicators about how some key industry disruptors are going to accelerate this year, even as it’s tempting to focus on an expected 2021 recovery that keeps getting pushed back with each economic forecast update. It’s important to look beyond an anticipated economic cycle to examine the deeper shifts likely to impact distribution channels. To do that we need a little deeper context.
Core Themes Define Competitive Advantage
From my viewpoint over the past 30-plus years tracking the industry, there is a select set of evolving if not unfamiliar trends that impact distribution channels. These trends include technology, talent, analytics and distribution models. Within each of these larger concepts, our team at MDM analyzes and reports on the core differentiators and capabilities that define high-performing distributors.
The framework of fundamentals guides our research, industry coverage and the core events – four virtual and one in-person – we have scheduled for this year. The details will change in important and disruptive ways, but how distributors prioritize and execute on the trends will define their competitive advantage and profitability.
After getting punched in the gut at the end of the first quarter in 2020, the distribution industry in North America is doing what it has done in every other business cycle across the past five decades: adapt and re-invent the value proposition to survive and, for many we talked with throughout last year, thrive by pivoting quickly to meet new customer needs.
Watch for the 2021 Venturi Effect
There were a few common themes for those able to pivot and thrive in 2020. Distributors who put in place initiatives – in technology, talent, analytics or business model shifts – prior to the onset of the pandemic were positioned well to handle the disruption. (Please revisit our 2020 MDM LIVE series archive for dozens of case studies.)
As the growth cycle takes shape in 2021, we’re going to see an acceleration phase kick into high gear. It’s happening already in the M&A cycle, which we’ll be examining in our upcoming Virtual M&A Summit in February.
The analogy of the Venturi effect serves as a way to think about the impact that technology has on the competitive landscape of distribution. The Venturi effect states that as a fluid moves through a reduced space, the molecules must speed up in the constricted region in order for the total flow rate to remain the same. Technology is a constrictor and enabler at the same time; distributors can define how they manage the turbulence induced by that.
It’s a good time to double down on that analogy. A consolidation cycle will heat up, but so will the ways in which distributors capitalize on the investments they have made and make this year to build their own capabilities and differentiation. It will be an incredible year of opportunities and ultimately growth, and our team is excited to explore and report the many ways it shapes up.
Thank you for your support over a challenging year, and I wish you and your team the best in an exciting time of industry growth and transition ahead.
Join MDM in February for the MDM 2021 Virtual Distribution M&A Summit
For our first event of 2021, MDM is hosting a Virtual M&A Summit on Feb. 25. We’ll be examining the acceleration phase outlined above in this event as well as upcoming ones. It will be a timely and informative look at the distribution M&A landscape, including considerations for buyers and sellers, insight on positioning and valuations, and a macro look at which sectors are projected to see the most consolidation in 2021. I’m excited to build on the tradition of great Distribution M&A Conferences we established in 2017.