Industrial Distributor M&A Pulse – Q4 2021

Inflation remains one of the biggest concerns for business owners heading into 2022. As wages and materials saw significant pricing increases throughout 2021, companies were largely successful in passing off these higher costs to customers to maintain margin performance and generate further profits. With an inflationary environment expected to continue into 2022, it will be important for business owners to stay at the forefront of pricing changes and continue to protect their historical margins.

Following a record year of M&A in 2021, many industry participants were skeptical of the market’s ability to continue its momentum into 2022. However, business owners remain confident in the direction of the economy and continue to bring a robust number of deals to market. Inflation, interest rates, and other macroeconomic risks have not dampened owners’ plans to sell in 2022, with significant corporate profits, and private equity “dry-powder” keeping valuation multiples at historically high levels.

The importance of a strong management team cannot be understated when entering a sale process. Buyers are keenly focusing on companies with resilient management teams that can adapt and lead their organizations through uncertain and ambiguous environments. Businesses with continuity at the executive level are receiving incremental proceeds as certainty is highly valued in this market, with premium compensation packages utilized as a retention tool.

Q4 2021 – Strong Finish for M&A in 2021

Both US and Global Industrial Distribution M&A volume rose above 2020 levels in 2021. Moreover, 2021 US Industrial Distribution M&A activity increased 38.6% year-over-year to 374 transactions. Global M&A activity far surpassed 2020 levels, increasing 35.4% to 843 transactions, an all-time high. Also, a record setting quarter, Q4-2021 closed 259 transactions globally. Industrial Distribution M&A activity proves businesses managed to combat the current global challenges, allowing buyers and sellers to feel confidence in the space moving forward. When comparing quarter-over-quarter, both US and Global Industrial Distribution M&A saw an increase. US levels increased 54% vs 64% globally. The YoY surge for Q4 was likely driven by owners capitalizing on favorable valuations as competition for healthy assets remained robust and by the threat of heightened capital gains taxes.

Manufacturing sector indicators remained in line with the prior quarter, some decreasing, at the end of Q4 2021. The Institute for Supply Management (“ISM”) Production Index slightly decreased to 59.2 in December 2021. The ISM Purchasing Managers’ Index decreased to 58.7, still below the year high of 64.7 from March 2021. The ISM New Orders Index decreased to 60.4 in December 2021. The Industrial Production Index, which measures the real production output of manufacturing, mining, and utilities, increased to 101.89.

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