What We're Reading


"Economic activity in the manufacturing sector expanded in February, and the overall economy grew for the 106th consecutive month, said the nation’s supply executives in the latest Manufacturing ISM Report On Business.

'This indicates growth in manufacturing for the 18th consecutive month at strong levels led by continued expansion in new orders, production activity, employment and inventories, with suppliers continuing to struggle to meet demand,' Timothy R. Fiore, Chair of the Institute for Supply Management, said. 'The PMI at 60.8 percent is the highest level of expansion seen since May 2004, when it reached 61.4 percent.'"
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"Recently, Warren Buffett disclosed that Berkshire Hathaway is holding on to $116 billion in cash. One of the reasons Buffett is sitting on such a large pile of cash is he’s struggling to find good companies to buy at a reasonable valuation.

Mariann Montagne, a senior portfolio manager for Gradient Investments, identified three potential acquisitions for Buffett, including Fastenal and Grainger. She named the two distributors because with “Fastenal and Grainger, you are providing the inputs for that infrastructure build-out without the risk of the infrastructure.”

Buffett has a track record of understanding industry dynamics better than anyone and he demands rational valuations, so if he starts buying more distributors, it’s probably a good time to be a buyer. But that could also mean you already missed your best opportunities as a seller."
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"Automation is a powerful tool and comes in many shapes and forms. In the warehouse, automation is generally used to make gains upon existing processes by improving efficiency, speed, reliability, accuracy and (eventually) cost savings. Gone are the days of thinking that paper-based processes are enough.

Automation is at everyone’s disposal, yet investing in it doesn’t mean it will solve every goods-handling issue or be the right fit. Humans are still better at a lot of things. To understand where automation can be best applied, let’s look at some of the areas where it is (and is not) useful."
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"Amazon is pushing to turn its nascent medical-products business into a major supplier to U.S. hospitals and outpatient clinics that could compete with distributors of items ranging from gauze to hip implants.

Amazon has invited hospital executives to its Seattle headquarters on several occasions, most recently in late January, to sound out ideas for expanding its business-to-business marketplace, Amazon Business, into one where hospitals could shop to stock outpatient locations, operating suites and emergency rooms, according to hospital executives who attended the meetings."
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Public Comparables and Trading Valuations

Key Trading Stats 
As of February 28, 2018 ($ in millions, except per share amounts)

Specialty Distribution Public Comparables 5

Stock Prices
As of February 28, 2018


M&A and Public Market Trends

Distribution Trends
LTM EBITDA as of February 28, 2018

Recent M&A and Private Equity Trends6

  • Private equity firms invested in 2,306 middle market deals totaling $324.1 billion in 2017, an increase in value of 14% year-over-year
  • U.S. middle market private equity firms raised $121.9 billion across 174 funds in 2017
  • Purchase multiples remain elevated, with the median valuation/EBITDA multiple at 10.4x and the median debt/EBITDA multiple at 5.6x in 2017
  • The U.S. middle market company inventory continued to climb, reaching a new high of 5,932 private equity-sponsored companies
  • 53% of U.S. middle market private equity deal value was accounted for by add-ons in 2017

M&A Transactions

Announced M&A Transactions5

Economic Update

A Snapshot of Key Economic Indicators
As of February 28, 2018 

1.    Industrial Distribution
2.    Modern Distribution Management
3.    IndustryWeek
4.    Wall Street Journal
5.    FactSet
6.    Pitchbook
7.    United States Census
8.    U.S. Federal Reserve