The first half of 2019 saw industrial distribution M&A volume continue to outperform 2018, increasing 19.5% in the US and 15.4% globally. Total deal volume is on track for a record year driven, in part, by distributors’ consolidation initiatives to gain scale and maximize efficiencies. Industry valuations continue to lag the broader S&P 500. S&P 500 valuation multiples remained consistent at a mean 12.9x EV/EBITDA (Q2 2018 mean of 12.6x), while the mean industrial distribution EV/EBITDA decreased to 11.4x (Q2 2018 mean of 13.1x). Uncertainty, driven by the ongoing trade war and potential for technology disruption within the industry, is a key contributor to the below-average performance for industrial distribution companies.
Macroeconomic indicators in Q2 2019 have generally shifted downward. The Institute for Supply Management (“ISM”) New Orders Index registered unchanged at 50.0 (indicating no economic expansion) in June 2019 after 41 consecutive months of increasing. The ISM Purchasing Managers’ Index closed at 51.7, down from 55.3 in March 2019. The Chicago Fed Midwest Economy Index, which measures non-farm economic indicators, saw a 0.5 point decrease from 0.2 in March 2019 to -0.3 in June 2019, indicating below-average growth for the Midwest economy. The ISM Production Index finished June 2019 at 54.1, decreasing from 55.8 in March 2019, but still above the threshold indicating expansion. The Consumer Price Index, a measure of inflation, continued its rise, up to 255.3, in June 2019 (0.5% growth over Q1 2019). Real GDP is expected to grow at 2.1% during Q2 2019.
Read Industrial Distributor M&A Pulse Q2 2019 Full Report