How Much Could You Get If You Sold Your Wholesale Business In the Current Economy?
by Scott Benfield, Benfield Consulting and Rich Vurva, Industrial Supply magazine
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| Scott Benfield |
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| Rich Vurva |
Nothing drives interest in distribution circles like the subject of mergers and acquisitions. We believe the reasons for the high level of interest indicate a pending wave of high-profile and rather risky acquisitions on the horizon.
Following the Great Recession, markets are now beginning to recover, investment is on the rise, and some wholesaler owners are looking to unload their businesses as the acquisitive environment heats up.
As multiples on EBITDA increase, we'll see more acquisitions and likely more than the average share of failures. But our experience and perspective is based on our work in the industry. We believe now is the perfect time for valid research on the subject. Therefore, we are launching the first of what we hope to be a series of research reports on the acquisitive environment in the wholesale sector. We want to move beyond experiential knowledge with thorough research so we can understand, in detail, what drives acquisitions, what makes for a higher price for the seller, and what is attractive to buyers. We want to give wholesalers a perspective on what to expect if they plan on selling their business in the next three years.
The Time is Right for Increased Activity
The acquisition of wholesalers by other wholesalers (strategic buyers) and private equity firms (financial buyers) is nothing new. In the first decade of the new millenium, a flurry of activity in the sector often drove multiples, before the Great Recession, into the double digits. Many wholesalers cashed in by selling their firms before the market crashed and before the multiples crashed along with them. Unfortunately, many of the rollups and frenzied buys before the crash are still hemorrhaging money. Several billion-dollar franchises in the building products and construction sector have announced losses for three years. Other firms, which paid too much for their acquisitions, are barely breaking even. In a recent gathering of high-profile wholesalers, the conversational consensus was that privately held wholesalers are patiently waiting for times to improve and then will begin to seek buyers. But one of our more burning questions is it necessary to wait if you know what buyers want?
The motivation to sell in today's market is not only due to the recovery. Many family businesses are reaching the third and fourth generations. At this point, the firm has many shareholders and many interests. Unfortunately, many family interests are competing and the loyalty to the business that granddad or great granddad started has waned. Too, wholesaling is a down-and-dirty business. It is not sexy, exciting or high profile. It is a solid business that typically follows the economy but, increasingly, it is tougher for a privately held firm to compete against larger companies with deeper pockets, a bench of good players, and technological and supply chain advantages.
In years past, larger firms often grew past their capabilities and their customers were consumed by the larger regional firms. Today, however, there are multiple examples of successful firms, in the billions of dollars, that have acquired companies and grown organically, and continue to post impressive earnings.
All of these reasons are motivating factors for privately held firms to sell out. Unfortunately, until now, there has been little research on which factors are the most important and what can be done to address them as the firm prepares to sell. That's why we believe research on the subject is timely and very much needed. Far too many wholesalers are planning in the dark when it comes to positioning their firm for the best deal. Does one put a focus on earnings, core functions, timing the market, or other parts of the business? What are buyers looking for and does this change by type of buyer? We will have answers to these questions but we need your help.
Take the Survey
You'll find a link to our survey below. The survey is divided into five sections including:
- Demographic Information
- M&A Market Predictions
- Selling the Firm
- Acquiring Wholesale Firms
- The Wholesale Acquisition Landscape-Participants and Processes
In all, there are some 40 questions covering a large range of topics concerning mergers and acquisitions in the wholesale sector. The survey should take 15-20 minutes to complete. The survey is open to all legitimate wholesaler executives and managers and private equity firms with wholesale companies in their portfolio. All responses are strictly confidential and we won't share any information on individual respondents and their individual responses.
At the end of the survey, you can leave us your contact information, and we will send you a free Executive Summary of the results for your participation.
We think that studying the M&A environment is crucial for investors in the wholesale sector and especially those who own participating interest in wholesale firms. We appreciate your help and promise to deliver a quality research product as we have in past collaborations.
You can find the survey by clicking here.
Benfield Consulting is a consultancy for B2B channels and located in Chicago. The firm's site can be seen at www.benfieldconsulting.com. Industrial Supply magazine is a bi-monthly publication for distributors in industrial, MRO, and contractor markets. The publication's site is www.industrialsupplymagazine.com.
INDUSTRIAL SUPPLY MAGAZINE
The March/April issue of Industrial Supply magazine features an in-depth cover story about Joyce Lansdale and Vallen. Plus, we're featuring articles by contributing writers Dirk Beveridge, Frank Hurtte, and David Kahle, as well as interviews with numerous product and distribution industry experts.
