Last year proved to be a strong one for mergers and acquisitions in industrial distribution and it appears that 2020 will continue that trend.
There are a number of reasons for this activity, including demographics. A recent study showed that most private companies in the U.S. are still owned and run by Baby Boomers who are looking to retire. In fact, one-third of Baby Boomers expect to transition the ownership of their companies in the next five years, according to a survey of business owners with annual revenue of $5 million to $250 million. The survey was conducted by Wakefield Research for SunTrust Bank.
And Baby Boomers are open to selling. SunTrust found that more than two in five (42 percent) of surveyed business owners have considered a purchase by a private equity firm or a third-party investor, followed by passing the company down to the next generation of their family (38 percent), and employees buying ownership (18 percent) as the next phase of the ownership of their business.
“From our perspective, business confidence remains very high, which we believe is very constructive for the M&A market,” said George Calfo, managing director at SunTrust Robinson Humphrey late last year. “In terms of volume and strategic conversations and activities, we see continuing momentum going into next year (2020) and as far as we can see at this point.”
In addition, there is plenty of cash available to private equity firms. The Blackstone Group Inc., Carlyle Group LP and other firms, for example, have almost 1.5 trillion in unspent capital, the highest year-end total on record, according to Prequin, which provides in-depth and research for clients. Private equity firms executed about $450 billion of deals last year, according to Bloomberg.com.
Prospects for continued strength in mergers and acquisitions in 2020 do, indeed, look good, according to EY’s latest Global Capital Confidence Barometer. The October barometer found that 52% of senior executives who responded to the survey expect their companies to actively pursue M&A in 2020, well above the average reading over the last decade.
This year’s presidential election could possibly cause an increase in M&A activity. As Bloomberg pointed out in a recent article, some Democratic contenders, including Joe Biden and Bernie Sanders, have proposed changes to estate tax rules that would make it harder for the wealthy to pass on fortunes “to children, grandchildren and beyond.”
If the Democrats win the election and Congress, there could be a number of tax changes that could target the wealthy. That could mean more companies might be looking to sell before any of those changes are implemented.
How the ongoing COVID-19 virus global pandemic will impact industrial supply M&A is yet to be seen. It may largely depend on how long the virus impacts on manufacturers' supply chains continues.
Meanwhile, our distribution sector saw some strong merger activity in 2019, with some deals expected to conclude this year. WESCO, for example, has apparently won, at least as of this writing, a bid for Anixter International and say their boards have approved a definitive agreement in which WESCO will acquire Anixter in a deal valued at some $4.5 billion.
One of the most active acquirers in 2019 was Protective Industrial Products (PIP), which acquired Boss Glove and Safety business from the Boss Manufacturing Company. PIP also acquired Worldwide Protective Products of Hamburg, N.Y., West Chester Protective Gear, Uniform Technology of Colorado, Dynamic Safety Inc. (DSI) in Laval, Canada and QRP Gloves Inc. of Latham, N.Y.
And in the industrial gases area, Airgas, now owned by Air Liquide of France, made a major acquisition of Tech Air, a large distributor of industrial gases and welding supplies from CI Capital Partners. Tech Air itself had made nearly 30 acquisitions in recent years.
Ohio Transmission Pump Corp, which had been on a tear in recent years acquiring nearly 20 companies, was acquired itself by Genstar Capital. OTP continued its acquisition program by acquiring IDG Compressor of Tennessee, Pumps Parts and Service, which has locations in the Southeast, and Furrey Filter and its subsidiary PSI Engineering and Filter and Coating Technology of Michigan.
Stay tuned for what could be another exciting year for M&A in industrial distribution.
Jack Keough is president of Keough Business Communications. He was editor of Industrial Distribution for 26 years. You can reach him at [email protected].