Industrial Distributor M&A Pulse – Q3 2020

Throughout the quarter, the world continued to grapple with the novel coronavirus pandemic, which continues to be a dominating force behind world governments’ fiscal and monetary policies. Economic activity remains impacted around the globe, as governments, businesses, and consumers digest developments around infection rates, additional therapies, and vaccine development. M&A activity is recovering from pandemic-induced lows – though remains depressed relative to 2019 – as the prospects of near-/mid-term economic recovery becomes more realistic with the proven efficacy of several vaccines.

Year-to-date (“YTD”) Q3 2020 domestic M&A activity in the industrial distributor sector lagged YTD Q3 2019 levels, decreasing 38% to 173 transactions through Q3. Global M&A volume in the sector also fell, decreasing 34% (406 transactions vs. 618 transactions in YTD Q3 2019). Public equity multiples (as reflected by the S&P 500) continued to rebound significantly from the end of Q1 2020 as investors gained comfort that worst-case economic scenarios are unlikely. The Q3 2020 mean industrial distribution EV / EBITDA of 12.0x reflects a strong improvement from Q1 2020, though it remains to be seen if valuations can sustain levels close to those pre-pandemic. M&A market analysts are cautiously optimistic on go-forward activity, buoyed by the prospect of a divided federal government (two Georgia U.S. Senate races remain open) and the resultant gridlock. This gridlock translates to fewer fiscal and regulatory policy changes M&A markets need to digest, preventing any pause in M&A activity required to do so.

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