After a record year of M&A deal volume in 2014, industrial distributors continued to exhibit an appetite for inorganic acquisition-driven growth in 2015. Deal volume in the industrial distribution segment grew 8.9% YoY to total 759 deals, representing a CAGR of 13.4% since 2010. Despite several notable private equity deals occurring throughout the year, including Irving Place Capital’s acquisition of Ohio Transmission Corp. in October and Platinum Equity’s acquisition of PrimeSource Building Products, Inc. in May, the industrial distribution M&A landscape was again dominated by strategic buyers seeking access to new markets, new customers, and additional product lines.
2015 saw a greater number of transactions with reported enterprise values of over $500 million, especially among strategic acquirers. Industrial distribution deals valued at over $500 million totaled 10 percent of total deals, compared to only 4 percent in 2014. While strong corporate balance sheets and relatively easy access to capital continue to support deal flow across the broader economy, the sustained growth in deal volume and increasing amount of large deals in the industrial distribution segment may reflect pressures placed on publicly traded distributors to generate strong earnings growth in an otherwise sluggish economic environment. Faced with softness in emerging markets, a strong dollar pushing down exports, a contraction in the Purchasing Managers Index, and a general glut in oil and other commodities, industrial distributors that comprise the PMCF Industrial Distribution Index reported 63 completed deals during the year, up 6.8% from 2014.
Expect the aforementioned headwinds to persist and impact deal flow in 2016. In the short term, volatility in the equity and credit markets can lead to extended closing timelines and tighten previously loose financing sources. From a macro perspective, buyers and sellers are focused on predicting the timing and magnitude of the next slowdown in the M&A market. Deal volume has risen consistently since the depths of the financial crisis, and record years in 2014 and 2015 suggest the market may be reaching its peak. Still, certain characteristics of the current market, such as accommodative monetary policy, significant cash on corporate balance sheets, and undeployed private equity capital, will continue to sustain a healthy M&A environment in the short-term in our opinion. While the M&A cycle may taper in the coming years, sellers should continue to benefit from accommodative market forces and attractive valuations over the next 18 months, meaning sale processes launched by Q3 of this year should realize these advantages. PMCF expects 2016 to be a healthy year for M&A activity – specifically in the middle-market – as business owners attempt to capitalize on the remaining momentum in the M&A market.
Read Industrial Distributor M&A Pulse Q1 2016 Full Report