The first half of 2018 saw reasonable industrial distribution M&A activity, though activity has slowed relative to recent high volume periods (perhaps in response to developments around trade policy). Notwithstanding, deal volume/value, public equity performance, and economic indicators point to continued traction in the industrial distribution market. While year-to-date (“YTD”) industrial distribution deal volume decreased 8.5% over YTD Q2 2017, public valuation multiples continued to rise, with the median industrial distribution EV/EBITDA multiple increasing to 13.2x in Q2 2018 from 11.4x in Q2 2017, and the mean multiple increasing from 11.9x to 13.2x.
Macroeconomic indicators in Q2 2018 continue to point towards growth. The Institute for Supply Management (“ISM”) New Orders Index registered above 50 (the threshold for economic expansion) for the 22nd consecutive month in June 2018, finishing at 63.5 vis-à-vis 61.9 in March 2018. The ISM Purchasing Managers’ Index closed at 60.2 in June 2018, up slightly from 59.3 in March 2018. The Chicago Fed Midwest Economy Index, which measures non-farm economic indicators, saw a small decrease from 0.5 in March 2018 to 0.4 in June 2018, both values still indicating expansion. The Consumer Price Index, a measure of inflation, saw an increase, up to 250.9 in June 2018 (0.56% growth over Q1 2018).
A number of additional data points indicate a healthy economy for industrial distributors. The ISM’s Production Index finished June 2018 at 62.3, up from 61.0 in March 2018 (over 50 indicates expansion). While 2018 equity markets have experienced some volatility in the first quarter, they remain flat year-to-date but elevated over June 2017 levels (the S&P 500 closed at 2,718 on June 29, compared to 2,423 on June 30, 2017).
Read Industrial Distributor M&A Pulse Q2 2018 Full Report