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Industrial Acquisition Activity Continues to Pick Up Steam

September 8, 2010

Distributors and manufacturers continue to look for acquisition opportunities, with activity picking up in several sectors. Power transmission distributors Applied Industrial Technologies (No. 8 on MDM's top 40 industrial distributors list) and Kaman (No. 16 on the list) have been particularly active in that sector.

Other areas of pickup: electronics (Avnet's latest deal), industrial gases (the Airgas-Air Products back-and-forth), and industrial manufacturing in general. See the latest in distribution and manufacturing M&A from MDM here.

According to Thomson Reuters, announced deals and offers in August – which is usually a slow month – were at $262 billion worldwide, which is the highest value announced during an August since 1999. The number of deals however is still lower than last August, according to this report.

Though we are definitely seeing private equity firms back in the game, most of the activity has been driven by strategic buyers – or large public companies. In the Thomson Reuters report, those interviewed said that some deals are being driven by companies "seeking to offset limited internal opportunities to expand," due to a low-growth environment.

In fact, manufacturers such as GE are reporting plans to spend billions of dollars on acquisitions. (Read that report here.)

And large public distributors have recently been open about their plans to seek out acquisition opportunities.

In my recent interview with Jon Skelly of Vetus Partners, he offered a reason that many distributors have been seeking acquisition opportunities (echoed in many articles on the topic): "The strategic buyers have a lot of cash at their disposal. During downturns they deleveraged their balance sheets. They collected receivables and did not buy as much inventory. Those receivables and inventory that were on their balance sheets turned into cash. They have to find ways to invest it and earn their cost of capital or better. Some are doing share repurchases, and some are paying dividends. And some are doing acquisitions or some combination of the above."

But M&A has the greatest potential to create long-term value, he says.

Read MDM's full interview with Skelly here: M&A Valuation Trends

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