Impressive performance continued in the third quarter of 2017 across M&A markets, public equities, and economic indicators. Year-to-date (“YTD”) industrial distribution deal volume increased 9.8% over YTD Q3 2016. Public valuation multiples also rose, with the median industrial distribution EV/EBITDA multiple increasing to 12.2x in Q3 2017 from 11.7x in Q3 2016, and the mean multiple increasing from 12.4x to 13.3x.
Macroeconomic indicators were largely positive once again in Q3 2017. The Industrial Supply Association Distributor’s Index registered above 50 (the threshold for economic expansion) for the 14th consecutive month in September, finishing the quarter at 72.4, 6.1 points higher than at the end of Q2. Similarly, the Institute for Supply Management Purchasing Manager’s Index closed September at 60.8, its highest level in more than five years. The ISM Production Index, meanwhile, decreased 2.3% in Q3 vis-à-vis Q2, but was up 23.2% year-over-year and recorded its 12th consecutive quarter above the economic expansion threshold. The Chicago Fed Midwest Economy Index, measuring nonfarm economic indicators, was an exception to otherwise positive data, registering (0.1) in September, below the 0.0 mark representing the starting point for expansion. The Consumer Price Index increased 2.2% since Q3 2016, indicating moderate inflation levels.
Additional data points corroborate the expanding economic activity realized by the industrial sector. The Commerce Department reported in September that GDP grew 3.0% in Q3, marking the first instance of back-to-back quarters with 3.0% or greater growth in three years. Construction spending in September increased 2.0% from levels one year ago, according to the U.S. Census Bureau. The Board of Governors of the U.S. Federal Reserve also reported that industrial production rose 0.3% in September, with the largest gains coming from durables such as nonmetallic mineral products, machinery, electrical equipment, appliances, and components.
Read Industrial Distributor M&A Pulse Q3 2017 Full Report