The 2020 Mid-Year Economic Update_long

Commentary: The Bigger Picture on M&A

While recent headlines have focused on The Home Depot and its pending acquisition of Hughes Supply, there’s a broader story addressed in the lead article in this issue.


Three years ago, consolidation and M& A activity in most wholesale distribution sectors had slowed to a trickle. Talk was of the quick demise of industrial channels. Many distributors put exit and growth strategies on ice and switched to survival mode. What a difference today.


What has changed fundamentally is the infusion of outside capital into wholesale distribution markets on a larger scale. There’s more competition for good companies. Home Depot may be priming the pump, but financial buyers are changing the overall competitive landscape, valuations and certainly seller expectations. No one expects Home Depot’s 12X EBITDA purchase price of Hughes to set the bar, but it has definitely helped ratchet it up.


This is not likely a repeat of the feeding frenzy in the late 1990s. The lead financial buyers on the scene today are seasoned and very clear about the value points of distribution in general and specific attributes they seek to make the deals work.


Another interesting aspect of this shift to an increased pool of dealmakers in the industry is its impact on consolidation. At the same time Home Depot continues to grow its stake in distribution sectors, there has been a corresponding increase in the base of potential consolidators. Home Depot has some formidable competition, and that will help maintain the fragmented nature of distribution. There may be fewer larger players overall, but customers will continue to have some very clear choices. That supports the continued health, value and long-term viability of independent distribution channels.

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