Industrial Distributor M&A Pulse – Q4 2018

2018 industrial distribution M&A volume convincingly exceeded 2017 levels (increasing 7.0% globally and 16.2% in the US). This increase in volume correlates to continued economic strength in both Europe and the US. Despite increasing deal volumes in 2018, public equity performance and macroeconomic indicators suggested greater overall uncertainty and decelerating growth in Q4, driven by US and global markets’ negative reaction to increased US interest rates and continued unrest in global trade. Public valuation multiples reacted in-line with overall market volatility, with the mean industrial distribution EV/EBITDA multiple decreasing from 13.1x in Q4 2017 to 10.3x in Q4 2018 (compared to the S&P 500, whose mean multiple dropped from 12.8x in Q4 2017 to 11.0x in Q4 2018).

In the US, Q4 2018 macroeconomic indicators continue to point towards economic expansion (although at a slower rate – see charts on page 5). The Institute for Supply Management (“ISM”) New Orders Index registered above 50 (the threshold for economic expansion) for the 36th consecutive month in December 2018, finishing at 51.1 vis-à-vis 61.8 in September 2018. The ISM Purchasing Managers’ Index closed at 54.1 in December 2018, down from 59.8 in September 2018. The Chicago Fed Midwest Economy Index, which measures non-farm economic indicators, declined to 0.2 in December 2018 from 0.3 in September 2018 (both values still indicate expansion). The ISM Production Index finished December 2018 at 54.3, a significant decrease from September 2018 at 63.9, but still above the threshold indicating expansion.

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