The fourth quarter of 2017 closed out another near-record year for industrial distribution M&A. A host of factors, including deal volume and deal value, public equity performance, and myriad economic indicators point to continued traction in the industrial distribution market. Deal volume grew 1.4% year-to-year, while public valuation multiples remained strong at a median of 12.4x EV/EBITDA multiple (consistent with the Q4 2016 median of 12.6x) and a mean of 14.3x.
Macroeconomic indicators remained positive through the end of the year. The Industrial Supply Association Distributor’s Index registered
above 50 (the threshold for economic expansion) for the 16th consecutive month in November 2017, finishing at 65.2 vis-à-vis 72.4 in September 2017. Similarly, the Institute for Supply Management (“ISM”) Purchasing Managers’ Managers’ Index closed at 59.3 in December 2017; down slightly from 60.8 in September, but still quite strong overall. The Chicago Fed Midwest Economy Index, which measures non-farm economic indicators, rebounded from (0.1) in September 2017 (indicating retraction) to 0.4 in December 2017, indicating expansion. The Consumer Price Index, a measure of inflation, continued its rise, up to 247.9 in December 2017 (0.6% growth over Q3 2017).
A number of additional data points indicate a healthy economy for industrial distributors. The ISM’s New Order Index remained at high levels, finishing 2017 at 67.4, up from 63.4 in October 2017. Similarly, the ISM’s Production Index finished 2017 at 65.2, up from 61.0 in October 2017. Large transactions at the beginning of 2018 bode well for a continued robust M&A market, including the acquisition of FCX Performance by Applied Industrial Technologies (NYSE:AIT) for $768M, and HD Supply’s acquisition of A.H. Harris & Sons, Inc. for $380M from Frontenac Company.
Read Industrial Distributor M&A Pulse Q4 2017 Full Report