This is a part of the 2014 Distribution Trends Report. The annual report was researched and written by MDM editors based on interviews with dozens of wholesaler-distributors, as well as industry experts and manufacturers. MDM also conducted a survey of its readers to uncover the trends outlined in this report.
2014 Distribution Trends Report
This article is a part of MDM's 2014 Distribution Trends Report. The article addresses consolidation trends and how 2013 activity is affecting the current market.
While the last decade has been marked by heavy consolidation across industries, 2013 was a quieter year. Even distributors that have been highly active consolidators, such as Airgas and Sonepar, seemed to be keeping their heads down a little more. But both companies have already picked up the pace in 2014.
“The prevailing slow-growth environment quite possibly limited some of the M&A activity in the last six to nine months,” says Brent Rakers of Wunderlich Securities. “There’s still definitely a consolidation interest. … There’s a lot of interest still in expanding your product set and deals that expand your customer set.”
That said, a few large deals in 2013 changed parts of the landscape for 2014. MSC Industrial Supply’s acquisition of Barnes Group’s North American distribution business realigned a few players on the Top 40 list, and Grainger made further advances into newer categories such as safety.
Industry-watchers expect consolidation trends will accelerate as strategic buyers build on multichannel models and invest in new tools that help them drive relationships with suppliers and customers across multiple locations. “We continue to see strong activity across the distribution space,” says Jason Kliewer, managing director for investment banking firm Robert W. Baird & Co.
Private equity firms also continue to be active in distribution, Kliewer says. “Large distributors tend to command a relatively small percentage of their total addressable markets, leaving an opportunity for private equity firms to invest and build consolidation platforms. These sponsors help to grow these businesses ahead of an eventual sale to another private equity firm, a strategic buyer or an IPO.”
Distributors also continue to look overseas for growth as suppliers and customers focus on building global supply chains. “Around half of our sale assignments in recent years have included an international buyer or seller,” Kliewer says.
Lending markets are strong, Kliewer says, which drive valuations upward. But while M&A markets are generally strong, Kliewer says there’s a scarcity of industry-leading distributors currently available in the market.
