[JACK KEOUGH] A Closer Look with
Distribution could be in the midst of a consolidation phase. Industrial Distribution’s latest Annual Survey of Distributor Operations, for example, shows that 25 percent of industrial distributors would be agreeable to accepting a buy-out offer, up
from 19 percent last year.
One-third of the respondents say they are actively looking to
acquire another distributor, up slightly from previous years. And
during 2013 and the first half of this year, there have been a number of transactions — which doesn’t surprise industry experts.
“The M&A and financing markets are incredibly strong,” says P.
Reed Anderson, managing director and head of distribution for
Houlihan Lokey, a global investment bank with expertise in mergers & acquisitions.
“Valuation and leverage multiples are at or near historical
highs. The current environment represents a phenomenal time
for an owner to maximize valuation in a sale. Buyers fall into two
camps — both of which are highly motivated and equipped to
pursue acquisitions today,” he says.
“Strategic buyers have strong balance sheets, large amounts
of cash, and are seeking a way to maintain growth that outpaces moderate U.S. economic growth. Acquisitions fill that void,”
He also pointed out that record amounts of capital are committed to private equity firms.
“Because of the lifecycles of funds, many raised capital before
the downturn and are highly motivated to put capital to work
now before it expires,” he says.
In several recent calls with financial analysts as well as interviews
with media outlets, some of distribution’s top CEOs made comments about consolidation.
Jim Ryan, chairman, president, and CEO of Grainger, the largest
MRO distributor in the country, told Bloomberg.com that the in-
dustrial distribution sector is still a highly fragmented business but
that “we are in the front stage of industry consolidation.”
During 2013, Grainger acquired two companies: Safety Solu-
tions, a Dublin, OH-based distributor of safety footwear, supplies,
and services with a strong focus on the manufacturing sector, and
E&R Industrial Sales, Inc., a distributor of metalworking, produc-
tion supplies, and MRO materials to manufacturers and industrial
He isn’t the only CEO to mention consolidation.
In a conference call with industry analysts, Erik Gershwind, CEO
of MSC Industrial Direct, says the industry could be in the early
stages of consolidation.
“We’ve described many times what we see as those inflection
points,” Gershwind told analysts.
“We see that beginning to play out. So on the one hand, that’s
really exciting because I think that does provide the potential for
a growth tailwind for our company,” he said. “On the other hand,
we’re coming from a place where the Top 50 players in our space
have 30 percent share. This is a story that will play out over a
decade or more. So I would not characterize any ratcheting up of
competitive intensity vis-a-vis large players. I would comment that
the local distributors are under as much or more pressure than
they’ve ever been,” he said, according to the transcript of the call
as provided by www.seekingalpha.com.
MSC made one of the largest acquisitions in the distribution sector in the past few years when it acquired Barnes Distribution of
North America (BDNA). The acquisition of BDNA for $550 million
was announced in April of 2013.
What we have also seen in acquisitions in the past few years is
larger distributors buying competitors that have complementary
product groups. This is allowing a distributor to become a one-stop shop for its customers.
Wesco, for example, was once thought of as a purely electrical
distributor. The PA-based company completed the acquisitions
of three companies during the first half of 2014. Two of those
distributors were connected to the electrical, construction, and
utility segments, but the third was Hazmasters Inc., a Canadian
distributor of safety products servicing customers in the industrial,
construction, and institution markets.
The addition of Hazmasters further expands WESCO’s presence
in Canada and strengthens the company’s portfolio of MRO products and services. It is the second time in the past two years that
Industry Consolidation Said to be