Distribution - Strategic Buyer Acquisition Priorities
Strategic Buyer Acquisition Priorities
Over the past several weeks we spoke with many of the most active strategic acquirers in the distribution industry. Overall, these large distributors have acquired more than 400 companies since the year 2000. Below, we summarize our findings from our discussions:
Appetite for Acquisitions Remains High
Every one of the large distributors we spoke with plans to be an active acquirer over the next twelve months. All but one planned to be as active or more active than they’ve been in the past twelve months, and the one distributor that expects to be less acquisitive this year is doing so because it is still digesting some very large acquisitions made last year. There was general recognition among the large distributors that acquisition multiples remain strong, often 8x EBITDA or higher in sought after distribution subsectors, especially if the target company has a strong value-added services offering. (See our November 2011 report: “Driving Valuation with Value Added Services”)
Safety & Security among the Highest in Demand
While the large distributors are interested in a wide variety of product categories, there were a few areas that seem to be in particularly high demand.
Safety products and services were mentioned by several of the large distributors. These targets can carry a range of products including gloves, apparel, hard hats, fall protection, eyewear, ear protection, respiratory systems and safety signage.
The overall industrial MRO category remains popular among these acquirers, who expressed continued interest in acquiring distributors that carry bearings, fasteners, cutting tools and abrasives.
Access Control & Surveillance
Security products distributors are being sought by several large distribution companies. The demand ranges from mechanical and industrial distributors that are interested in gates and locks to electronics distributors looking for companies that carry camera systems and surveillance equipment.
Cloud computing is a high priority area for acquisitions by technology distributors. Cloud computing acquisitions include traditional distributors that sell servers, software and other equipment to the data center market, but many of the large distributors are also searching for cloud computing service providers. These technology distributors are interested in growing their cloud services businesses in order to ensure continued relevance in a future in which enterprise customers buy less hardware, and access more of their computing power online.
Additional Sectors with Strong Acquisition Interest
In addition to the four areas highlighted above, there were several distribution subsectors that were not mentioned quite as often by the large distributors but which are still in high demand.
Datacom & Specialty Wiring
Datacom and specialty wiring is a popular target area for strategic acquirers because these companies typically have higher margins than those that sell commodity level wiring and electrical products.
Utility & Waterworks
Infrastructure upgrades and smart grid deployments appear to be driving demand among large distributors that are looking to make acquisitions in the Utility and Waterworks sectors.
Supply Chain Services & Reverse Logistics
While supply chain services are typically viewed as value added offerings provided by many different types of distributors, several of the large distribution companies we spoke with are specifically looking to acquire companies that can provide or augment these capabilities. The fields of reverse logistics and IT asset disposition, recovery and disposal are attracting a lot of attention from large technology distributors.
Wide Variety of Targets
Beyond these first two tiers, the large distributors mentioned many other product areas that they are targeting for acquisitions, and many were mentioned by more than one large distributor. The table on the following page provides a list of all the subsectors that were mentioned as priority acquisition areas. Of course, there is a long list of distributors large and small that we did not talk to, and we believe demand for distribution acquisitions remains strong across a wide variety of subsectors beyond those that are listed.
Private Equity Interest Also Remains Strong
In addition to strategic buyers, private equity firms are also attracted to distribution companies due to their characteristics of growth, consistent profitability and strong cash flows. VRA Partners has active relationships with more than 900 private equity firms. As shown in the chart below, nearly half of them have mentioned a specific interest in the Distribution & Logistics sectors. As a result, this widespread demand creates a market of over 400 firms that will actively look at distribution company acquisition opportunities.
VRA Partners, LLC
VRA Partners is an independent investment banking firm that focuses on providing merger and acquisition advisory services to leading middle-market companies and private equity groups located throughout the U.S. VRA Partners also assists companies with raising capital for growth, acquisitions, recapitalization, going-private and management buy-out transactions, as well as provides fairness opinions, valuations and strategic advisory services. The professionals of VRA Partners have completed more than 500 transactions with aggregate transaction value in excess of $35 billion across a broad range of industries.
The founders of VRA Partners have over 100 years of collective investment banking experience and come from a variety of backgrounds, bringing to the firm a diverse set of industry experiences and observations that benefit our clients. Notwithstanding our past experience, every transaction and company is different, and VRA Partners approaches each assignment as such, allocating the time and resources to ensure that we are informed about the dynamics of each client’s business and industry. Our transaction experience and our commitment to fully understand the opportunities facing each client allow us to effectively articulate to the marketplace how and why that client is unique. Importantly, we maintain the philosophy of treating our client’s objectives and interests as if they were our own.