The 2020 Mid-Year Economic Update_long

Is the M& A Game Shifting Back Into Strategic Players’ Hands?

It seems the M & A game may be shifting back into strategic players' court. Some recent transactions: 3M is buying PPE supplier Aearo for $1.2 billion, which was partly owned by global private equity firm Permira. Brazos Private Equity Partners is selling industrial master distributor ORS Nasco to a strategic consolidator, United Stationers, for $180 million.
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Rexel is majority-owned by a group of private equity firms, but after it acquires Hagemeyer (assuming the deal for $4.5B will go through), it will sell half the assets to Sonepar, a strategic player, including ...

It seems the M & A game may be shifting back into strategic players’ court. Some recent transactions: 3M is buying PPE supplier Aearo for $1.2 billion, which was partly owned by global private equity firm Permira. Brazos Private Equity Partners is selling industrial master distributor ORS Nasco to a strategic consolidator, United Stationers, for $180 million.
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Rexel is majority-owned by a group of private equity firms, but after it acquires Hagemeyer (assuming the deal for $4.5B will go through), it will sell half the assets to Sonepar, a strategic player, including the U.S., Asia-Pacific and some of the European assets. Consolidated Electrical Distributors (CED) just bought US Electrical Services Inc., which was originally funded by outside investors.
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Though we’ve said before in this blog that a few events do not make a trend, recent M & A transaction announcements beg the question: Are private equity firms starting to shift their focus from distribution or industrial markets in general? Strategic players have in recent months become more prominent in press releases, whereas it was not long ago when private equity firms more often than not were driving the market. Current credit markets are also likely slowing private equity deal volume.

The fall of Hoboken Floors may also facilitate an exodus of private equity firms from distribution. Hoboken, which was the largest independent wood flooring distributor in the U.S., filed Ch. 7 bankruptcy last week. It was controlled by private equity firm Code Hennessy and Simmons, which has successfully invested in other distribution companies, including Beacon Roofing Supply, which is now public. The stellar reputation CHS has had in distribution may be tarnished by its failure of the Hoboken investment made in 2005. It may also damage the reputation of this industry for firms that have only relatively recently jumped into the space. [Some private equity firms that have been investing in distribution for the past two decades, like Clayton, Dubilier & Rice (one of Rexel’s owners), will stay put.]
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The paring of private equity firms in the space could be a good thing, though. Supply Chain Equity Partners’ Jim Miller said in an MDM audio conference earlier this year that he thought there may be too much activity: “There are a lot of companies out there on the market right now that I don’t think were ready to go to market. There are more funds interested in distribution than truly understand the space, and there’s more financial advisors jumping in the space who have not done a lot of deals and are pushing for transactions where they probably shouldn’t.” He also said during that audio conference that when a big transaction fails (like Hoboken recently has), it could make the sector much less attractive to outside investors.
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Of course, it’s too early to say what will happen. We’ll keep you posted at mdm.com.
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In other news, Swedish seals manufacturer Trelleborg has acquired another distributor, this time a $15 million one in Pennsylvania. Publisher Tom Gale addressed this in a previous blog post, Marriages of Manufacturers, Distributors a Difficult Balancing Act

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