Industrial Distributors Serving End Markets Poised for Growth
2024 has seen a slowdown in activity for distributors serving general industrial end markets while those serving faster-growing end markets are largely performing well and provide attractive targets for acquirers.
Current faster growth end markets generally are tied to infrastructure such as flow control for water, wastewater, and industrial systems and processes; consumables, tools, and equipment used in civil and commercial construction; electrical products for power, power distribution, automation and controls, and electrification; and virtually all facets of aerospace & defense.
“The Industrial Distribution market remains attractive to buyers and investors,” according to Kevin Sargent, Managing Director and lead banker for the Industrial Distribution investment banking team at BGL. In its latest Industrials Insider, the team at BGL examines key demand drivers in current growth markets seeing an uptick in industrials M&A activity, including water and wastewater.
Rapid Growth in the Industrial Controls/Automation Market
The automation market is experiencing rapid growth, with global market projections forecasting expansion in excess of 10% annually between 2023 and 2030. Continued improvements in AI, robotics, and the Internet of Things have enhanced the effectiveness and accessibility of automation. With labor shortages visible across industries, automation can aid in helping to fill gaps and improve productivity, efficiency, safety, and conservation.
Distributors are seeking acquisitions to grow their market presence. Applied Industrial Technologies (NYSE: AIT) announced the May 2024 acquisition of Grupo Kopar, which extends AIT’s automation footprint with 16 locations across Mexico as well as Costa Rica and Texas. “Kopar has strong alignment with our strategy, focused on high-value robotics.”
Water and Wastewater Market Trends and Update for 2024
The Water Supply market is forecasted to grow from $27 billion in 2023 to $33 billion by 2028, representing a CAGR of 3.5% over the period. The Infrastructure Investment and Jobs Act (IIJA) provides over $60 billion for water-related infrastructure. In its FQ1 2025 earnings call, Core & Main (NYSE) CEO Stephen LeClair noted that the company is beginning to see projects funded by the IIJA in certain parts of the country. LeClair also reported healthy end market demand, noting positive trends in backlog and bidding activity.
Investment in critical water-related infrastructure—drinking water and wastewater systems—is not meeting current needs, reports the American Society of Civil Engineers (ASCE), which identified an $81 billion investment gap in its 2021 Report Card. Based on their analysis, if the water and wastewater sectors continue along the same path, the total gap will grow to more than $434 billion by 2029.
Expected Growth in the Power and Electrical Markets
With the IIJA earmarking $75 billion to address aging utility infrastructure, the utility market is expected to grow from $122 billion in 2023 to $154 billion by 2028. Increased funding is supporting the energy transition for more efficient power delivery and aging infrastructure upgrades including transformers, switchgear, circuit breakers, capacitors and reactors, protection and control products, automation, and monitoring and diagnostic products. In addition, significant demand is being seen for industrial and data center power management, switchgear, temporary power, surge protection and power conditioning, safety and disconnect, and electrification products for electric vehicle charging and solar applications.
For more information on demand drivers in the Industrials space, including power and electrical, industrial controls and automation, and aerospace and defense, we encourage you to download our full 22-page Insider here.
Contact Our Industrial Distribution Group
Led by Kevin H. Sargent and Andrew K. Petryk, BGL’s Industrial Distribution investment banking team leverages its industry knowledge and global relationships to execute highly effective and efficient transactions on behalf of our middle-market clients. Please reach out via our contact form below to learn more.