The integration and acquisition market has been hot since the outbreak. With the current increase in strategic buyers, private stock companies and global buyers, it can certainly be considered a seller market.

Many factors contributed to this trend. The distribution market has been highly fragmented for years, and the epidemic has intensified. The importance and vulnerabilities of distribution companies due to COVID-19 disruptions have been clearly identified. For many companies, the epidemic was an opportunity to build value. Technology-savvy distributors were better able to provide solutions to their customers than those companies that did not have a good technology base. Technology companies such as strong e-commerce platforms, robust ERP systems, and digital channel efficiency have made more money than technology lagging behind.

Conversely, other distributors may still provide an industrial base for buyers who want to expand or enter the space. In any case, these businesses are likely to appeal to anxious buyers. To that end, distribution companies are gaining tremendous value along with managing high consumer demand and critical capacity constraints.

Three M&A drivers

Among the drivers who have seen an increase in buyer demand in the distribution industry –

  • Strategic rulers – Distribution companies are looking to expand and often find it difficult to grow organic. By making purchases, these strategic buyers can grow in a variety of ways: geographically, product / supply and talent, cost-effectiveness, size economies and sales opportunities affect the bottom line.
  • Personal equality – PE companies are exploring key industries to raise trillions of dollars. The positive attitude of the distributor industry is driving competition between these companies to those who want to reach out or expand their footprint.
  • Non-US buyers – Perspectives from outside the United States (strategic and personal equity) look forward to investing in the US distribution industry and recovering from the pandemic in other countries, especially in Europe. In the midst of growth, these future rulers are willing to pay high prices for their businesses.

There is a lot of interest in the distribution space and the competition is pushing prices to a higher level, often tempting business owners who do not intend to sell now. Today, business owners have more options than ever to spend “money off the table.” Many owners are not ready to leave their company, but they do not want to lose it at the current high prices.

For some, there is an opportunity to sell to a private stock company or family office to invite a person who buys a portion of the company, pays a high price to the owner, to stay on board and participate in the company’s growth. “Apple’s second bite” when the rest of the business sells for a while. This is ideal for owners who want to reduce the amount of personal assets they have invested in the business, reduce personal risk and still be able to run and grow the business they have built.

Other owners who want to sell out completely and move on to the next stage of their lives are doing so at horrible prices.

To get the most out of marketing, owners need to prepare their company before the sale. This requires looking at their distribution business in a way that will be the future ruler. They need to be critical and realistic – identify and fix any problem areas when understanding a buyer. Now, with high demand for companies, low capital costs and willingness to pay premium prices, combined with the variety of buyers who want to enter this industry, it may be time to get things moving.

Alan Sharfston He is the CEO of the DAK team, An investment bank based in Rochester Park, New Jersey. It has negotiated more than 700 transactions in various industries, including several distribution companies. Reach it ascharfstein@dakgroup.com.

Co-author Steve Raymond He is the Managing Director of DAK Group and manages the company’s Philadelphia office. In the middle market, he has more than 25 years of experience directly with close business owners. Reach it sraymond@dakgroup.com.