The 2020 Mid-Year Economic Update_long

Commentary: Consolidation Can Provide Opportunity for Smaller Distributors


The lead article in this issue offers an interesting example of how private equity has been changing the course of consolidation in independent distribution channels. Would a family-held company such as McJunkin try to execute a deal of this size if not for the new ownership?


In any given sector of distribution, you can often identify one or more market leaders who are so locked into their paradigm of success by their own competitive and cultural history that they may not see emerging growth opportunities. Or the risk/reward equation appears too severe when they look at how their model could change. That may not be the case here, but it points out the competitive outlook outside investors can bring to company.


At the same time, you often find smaller distributors who ...

The lead article in this issue offers an interesting example of how private equity has been changing the course of consolidation in independent distribution channels. Would a family-held company such as McJunkin try to execute a deal of this size if not for the new ownership?

In any given sector of distribution, you can often identify one or more market leaders who are so locked into their paradigm of success by their own competitive and cultural history that they may not see emerging growth opportunities. Or the risk/reward equation appears too severe when they look at how their model could change. That may not be the case here, but it points out the competitive outlook outside investors can bring to company.

At the same time, you often find smaller distributors who see opportunity for further differentiating the value they provide when a large competitor suddenly gets even larger. There are often integration and transition issues in merger deals that offer windows of service opportunities to competitors. It can be a great time to validate the continuity, knowledge and access to quality products and services a local distributor can offer.

A certain percentage of customers will always go for the low price. Distributors who can’t escape the low-price spiral in this climate will shred any hope for profitability, particularly as private equity tends to tighten the seams of the ship it buys.

As distribution sectors consolidate, customers often gain clarity when it comes to their choices (or lack thereof) in vendor options and the differences between these options. By the very nature of this industry, this continued fragmentation offers great opportunities to build profitable companies at every level of investment and competition.

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