The pace of mergers and acquisitions in the distribution industry doesn’t appear to be slowing anytime soon. A Deloitte report found that despite some of the uncertainties in the current market, dealmakers are expecting sustained and strong global deal activity to continue through the end of 2019. That seems to be holding true in wholesale distribution based on the acquisition news coming out of leading industry publications over the past several months.
A major driver is Baby Boomer owners who are looking to retire. Distributors selling to a third party want to maximize the value they can get for their decades of hard work. One way to do this: Add real value by embracing the digital era. According to SureWerx CEO Chris Baby in a blog for Modern Distribution Management (MDM), acquirers will be looking for distributors that have implemented successful digital business practices, found partners in the channel to support those practices, and leveraged data and analytics to operate more efficiently and strategically.
A recent article in TEDMag (The Electrical Distributor) talked about the value of having a solid growth strategy if you’re selling your business. “Flying by the seat of one’s pants and hoping that growth comes as a result is a failed strategy for a company that’s looking to be acquired,” the author wrote.
In another piece from MDM, Steve Cosgrove of Cosgrove Partners, shared motivations of financial and strategic buyers. Financial buyers (typically a private equity firm) are looking for distributors that have high potential for growth. In their eyes, you are either a platform company that they can build on because you already bring a lot of value and scalability, which will drive a higher valuation, or an add-on. A strategic buyer – usually another distributor – is looking more at how your company will enhance their existing operations and fit into their longer-term plan. They’ll be looking at what differentiates you, and where you offer market-expansion opportunities.
It makes sense. Offering a service that strengthens customer relationships, moves the conversation beyond price, and improves operational efficiencies drives more to the bottom line, grows wallet share and solidifies a distributor’s spot in the market. Consultants throughout the industry have also long touted the importance of customer stickiness, which digital tools tend to support. With automated inventory replenishment, for example, distributors can build loyalty and boost existing-customer revenue by as much as 30 percent.
This customer stickiness helps distributors fend off Amazon and other competitors. Automated inventory replenishment, like that offered by eTurns TrackStock Manage, helps distributors put a moat around their customers because when your customer’s inventory is replenished automatically, they don’t have to go shopping online where they might buy from a competitor. Your customers benefit because they no longer risk stock-outs, or the added expense of unnecessary overstocking.
In other words, distributors are seen by customers as more than the products they sell. There’s nothing more attractive to someone looking to grow by acquiring your business.
Want to learn more? Contact me at Rock@eturns.com
Rock Rockwell, CEO