What We’re Reading

Economic Outlook For 20181

2018 is shaping up as the strongest in many years for distributors; anecdotally, distributors are crushing it. Public and private distributors across most sectors are reporting double-digit quarterly growth. Case in point: Fastenal recently reported a 12.5% net sales increase for May year over year (same for daily sales increase for the month). MDM predicts that all but two of the 19 major distribution sectors will record revenue growth in 2018 and 2019.

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Distribution Trends Roundtable: Discussing HVACR Distribution’s Past, Present, & Future2

HVACR distribution is a highly competitive industry. Not only do wholesalers have to compete amongst each other, the chase for profit margins includes challenges from e-commerce, Amazon, consumer-direct sales, big-box conglomerates, and more. Those who appropriately navigate these obstacles continue to lead the pack. The innovators surge ahead, while the imitators fall behind. ACHR News assembled a panel of some of HVACR distribution’s most recognizable leaders — individuals who have their pulse on trends of today and aren’t afraid to set the tone of tomorrow.

Read more from this article here.

Distributors Must Become Brand Value Creators – Distributors In The Digital Era3

There is a growing realization in today’s hypercompetitive and disrupted markets that the only brand value that counts is the one that is created through intentional interactions between humans, either online or in person. Brands are created through experiences, and experiences are created by two or more humans doing something together. Experiences are unique and flexible, since feedback is received on what is said and what is done. Advertising is unidirectional and fixed. Chatbots built on artificial intelligence may deliver experience-based brand value, but they do so by mimicking the results achieved by humans.

All of this is critically important for distributors, because, as historically local, people-based businesses, distributors are on the front line of creating customer experiences.

Read more from this article here.

Applied Industrial Technologies Watching For Targets; ‘We Haven’t Paused’4

Applied Industrial Technologies, the Cleveland, Ohio-based provider of industrial supplies, continues to engage in acquisition talks and hopes to close deals during the current fiscal year, CEO Neil Schrimsher said.

In his prepared remarks on the 4Q18 earnings call held 10 August, he said Applied is interested in acquisitions to extend its business reach and expand the company’s capabilities to serve industrial customers in its geographic markets.

In the Q&A session, KeyBanc analyst Steve Barger asked about the company’s leverage reduction and if it is ready to make acquisitions.

“We have continued to be active in M&A,” Schrimsher said. “We work our priorities. We have a productive pipeline and we have prospects or targets in ongoing continuing dialogue, but also valuation and diligence as well. So, we haven't paused, we've remained active, and as we go through this fiscal year we expect to close acquisitions.”

Read more from this article here.

Public Comparables & Trading Valuations

Key Trading Stats

As of August 31, 2018 ($ in millions, except per share amounts)

Specialty Distribution Public Comparables6

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Stock Prices

As of August 31, 2018

Trailing Twelve Months Stock Price Performance5

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M&A and Public Market Trends

Distribution Trends

LTM EBITDA as of August 31, 2018

TEV / EBITDA Multiples For Public Comparables6

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M&A Trends

Recent M&A And Private Equity Trends7

1H2018 M&A OVERVIEW

  • Middle market deal count and value is up 16% and 5%, respectively, over 1H 2017 totals
  • US PE middle market comprised 70% of money invested by private equity in 1H 2018
  • PE exits in 2Q 2018 increased, with 183 deals totaling approximately $14.8bn
  • ​The average US PE middle-market fund size jumped 27% in 1H 2018, increasing to $847mm, surpassing the record set in 2009 of $786mm

M&A Transactions

Announced M&A Transactions6

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Economic Update

A Snapshot Of Key Economic Indicators

As of August 31, 2018

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1. Modern Distribution Management

2. ACHR News

3. National Association for Wholesaler-Distributors

4. MergerMarket

5. Factset Transcripts

6. FactSet

7. Pitchbook

8. United States Census

9. U.S. Federal Reserve

 

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