Industrial Distribution M&A Market Trends
The Industrial Distribution M&A market remains robust with transaction activity broad-based. In line with the rally in the overall M&A market, distribution deal flow began accelerating in Q4 2020 and has maintained a brisk pace. Strategic and financial buyers are actively pursuing acquisitive growth to build scale through an expanded geographic footprint and product portfolio, increase value-added product mix, and/or gain access to technology to broaden the scope of products and solutions offered to customers.
- We expect investment activity to continue with the strong capital markets environment, capital availability, and low interest rates providing the necessary support to sustain deal flow:
- Public distribution stocks are outperforming the broader market. Year-to-date returns for the BGL Building Products, Electrical & Electronics, and HVAC composite indices of 39.97%, 28.96%, and 20.36%, respectively compare favorably to 19.04% for the S&P 500 and 15.32% for the DJIA over the same period.
- The public equity markets are open to capital raising, underscoring optimism for the sector’s growth prospects. In July 2021, Core & Main raised $697.67 million in an initial public offering. The stock is currently trading 26.6% above its offering price of $20.00 per share. Core & Main is a specialized distributor of water, wastewater, storm drainage, fire protection products, and related services. The company has a history of acquisitive growth, completing 12 deals with the backing of Clayton, Dubilier & Rice, which formed the platform in August 2017 after purchasing the Waterworks business from HD Supply. Core & Main is ranked as the tenth largest among MDM’s Top 40 Industrial & Construction Distributors with $4.2 billion in revenue.
- Corporate buyers are armed with healthy balance sheets and speak of building acquisition pipelines, while private equity funds have amassed substantial dry powder and are looking to deploy capital into high-quality assets.
- Debt markets continue to be very receptive to industrial distributors. Lenders tend to like their cash flow profiles (i.e., limited capital expenditure needs) and liquid nature of their balance sheets. Key areas of focus tend to be the degree of “value add”, scale, cyclicality, and customer/ supplier diversity.
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