Industrial Distributor M&A Pulse – Q2 2023

Q2 2023 – QUARTERLY M&A MARKET RECAP

Industrial Distribution M&A deal activity remained consistent through the second quarter, with 96 domestic transitions closed in Q2 2023, up 28.0% from Q1 2023. Globally, deal activity accelerated with 198 transactions in Q2 2023, up 16.5% from Q1 2023. While transaction volumes still lag below the record-breaking Q2 2022 levels both domestically and globally (a 7.7% and 16.5% decline in the number of deals closed over that period, respectively), deal multiples increased, matching Q2 2022 levels, indicating that strong business are yielding premiums in the market. In an article published by GF Data, Hedge fund manager Cliff Asness associates this to the “illiquidity discount” in private markets. He implies that investing in private markets insulates from the day-to-day fluctuations of public markets — which many investors are willing to pay a premium for. This began in 2022, as multiples on mid-market private equity transactions dropped markedly at the end of the year but were more resilient than public market peers.

Macroeconomic industrial sector indicators ended the quarter in contractionary territory. The US ISM Purchasing Managers Index (PMI), which summarizes economic activity in the manufacturing sector based on industry participant’s feedback, finished the quarter at 46.0 marking the eighth month in contractionary territory (below 50 represents contractionary territory). The ISM Production Index and ISM New Orders Index both also finished the quarter in contractionary territory closing the quarter at 46.7 and 45.6, respectively. Additionally, rising interest rates combined with increasing consumer prices led to an 8.0% decline in housing starts and 15.0% decline in housing permits YoY.

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