According to Managing Directors Bob Baltimore and Brian Lucas, buyers and investors will be focused on specialty distributors across multiple recession-resistant industries in 2019. Baltimore and Lucas are watching the impacts of Amazon and similar e-commerce businesses, tariffs and changing economic conditions on specialty distributors. Yet they encourage private companies, strategic buyers and investors to embrace the opportunities presented by these shifts.
Within your industry, which sub-sectors do you anticipate experiencing the highest levels of interest? Why?
Baltimore: I think we'll see continued strength in food service, healthcare and the automotive aftermarket. Those are all sectors that tend to do well despite changes in the economic cycle. Within those segments, there’s particular interest in distributors using technology to operate more effectively, and in those that sell solutions to their clients, versus those selling solely on price.
Which metrics are you watching most closely in relation to the performance of companies in your industry?
Lucas: There are a wide variety of important metrics. At the highest level, in specialty distribution it’s organic growth and margins: Is the company able to generate an appropriate return on its services?
Which industry-specific trends or issues are you watching most closely?
Baltimore: We’re watching what Amazon is doing in terms of the markets that it chooses to participate in. Amazon isn’t a huge threat to specialty distributors that are doing a great job of adding high levels of value. But it could be for those distributors that are selling solely on price and convenience.
Lucas: We are also keeping an eye on the driver shortage, and its impact on transportation costs.
Which geopolitical and/or macroeconomic issues are most relevant to your industry? Why?
Lucas: Dependent on the industry and the distributor, tariffs and their impact on the supply chain could become an issue. And those distributors that have exposure to Europe should be mindful of the various economic headwinds occurring in certain markets.
Given the length of the current bull market, what should private companies, private equity groups and strategic buyers be thinking about?
Baltimore: Bull markets are wonderful opportunities to grow and prosper. But the inevitable movement of the economic cycle will present additional opportunities, and you need to be ready for those, whether you’re a private company, a private equity group or a strategic buyer. It could involve different price points, new opportunities from an acquisition standpoint or the chance to take share from a weaker competitor that wasn’t ready for a tougher environment.
Which qualities make acquisition targets most appealing in a more challenging operating and investing environment?
Lucas: Being a great partner to your customers and consistently adding value. These are the same qualities that drive success in less challenging times. They just become more important when things change.