The first quarter of 2017 saw steady performance in the industrial distribution market. Deal volume was comparable to the same period last year, with only a 1.1% reduction in volume. A run rate comparable to 2016 levels is a positive indicator, as the 2014 – 2016 timeframe represented the peak of a six year period of robust M&A activity. Public valuation multiples showed the same behavior as the M&A market, with EV/Revenue multiples holding steady, the median EV/EBITDA multiple matching Q4 2016, and the average EV/EBITDA multiple increasing to 12.9x from 12.7x at the end of the year.
Like the equity and M&A markets, the macroeconomic environment in Q1 2017 was somewhat mixed, with some bright spots. The Chicago Fed Midwest Economy Index, a composite of economic indicators measuring growth in non-farm business activity, closed at 0.6, its highest point since April 2012. Additionally, the Institute for Supply Management’s Purchasing Manager Index, which measures sentiment among purchasing managers, closed the quarter at 57.2, indicating a strong positive consensus outlook, leveling off only slightly after six consecutive months of increases. Finally, Housing Starts and Building Permits during the quarter increased 3.0% and 2.4%, respectively, reflecting a housing market that continues to flourish.
In addition to the aforementioned economic indicators and M&A metrics, a number of additional data points indicate that the industrial distribution market and the driving forces behind it are exhibiting strong growth. For example, Affiliated Distributors, a $34 billion industrial products wholesale buying group, reported sales for all of its members grew by 8% in the first quarter of 2017. Additionally, the building market has been strong, and the U.S. Census Bureau announced that year-to-date March construction spending increased 4.9% over 2016 levels. Finally, Cushman & Wakefield’s Industrial Market Report indicates that the national Industrial Vacancy Rate for Q1 declined another 80 bps from the same point last year, bringing levels to 300 bps below the 10-year historical average of 8.3%.
Read Industrial Distributor M&A Pulse Q1 2017 Full Report