The first quarter of 2018 started off strong, albeit slightly behind Q1 2017, which was a near record year for Industrial Distribution M&A. A host of factors, including deal volume and deal value, public equity performance, and economic indicators point to continued traction in the industrial distribution market, while recent developments in trade policy, and uncertainty around those policies, has not meaningfully tempered deal activity. Deal volume reduced by 3.7% year-to-year, while public valuation multiples remained strong at a median of 12.5x EV/EBITDA multiple (consistent with Q1 2017 median of 12.5x) and a mean of 13.3x.
Macroeconomic indicators remained positive through the start of the year. The Institute for Supply Management (“ISM”) New Orders Index registered above 50 (the threshold for economic expansion) for the 19th consecutive month in March 2018, finishing at 61.9 vis-à-vis 65.4 in January 2018. The ISM Purchasing Managers’ Index closed at 59.3 in March 2018, equal to December 2017 and still quite strong overall. The Chicago Fed Midwest Economy Index, which measures non-farm economic indicators, continued its trend upward from 0.4 in December 2017 to 0.5 in March 2018, both values indicating expansion. The Consumer Price Index, a measure of inflation, continued its rise, up to 249.6 in March 2018 (1.0% growth over Q4 2017).
A number of additional data points indicate a healthy economy for industrial distributors. The ISM’s Production Index finished March 2018 at 61.0, down slightly from 63.9 in December 2017 but still very strong (over 50 indicates expansion). While 2018 equity markets have experienced some volatility, they finished the quarter strong with the S&P 500 sitting at 2,630.87 on March 29 (compared to 2,386.2 a year ago on April 1, 2017).
Read Industrial Distributor M&A Pulse Q1 2018 Full Report