Q&A: Building Companies Through Acquisition

Editors Note: Today we’re asking Bill Wade -  consolidation expert at Wade & Partners and one of the speakers at the Distribution and Manufacturing Profitability Forum - about his session titled "Consolidation Realities: A Guide To The Minefields Of Building Companies Through Acquisition." See what he has to say about why consolidation can be a great thing for a distributor, and make sure to join him at the Profit Forum for the whole presentation.

Industrial Distribution: Briefly, why do you say consolidation is the best opportunity for future growth in distribution?

Bill Wade: It really is the only type of growth that will finance itself, if you have the correct partner. Distributors should be able to affect a consolidation without putting a huge debt load on the surviving firm. That grows your debt capacity and should make it easier for you to continue consolidating down the road. If you are strong and you make the right first move, you get stronger. As long as you can continue doing that, it is not a momentum play, it is just a good way for people to redeploy their assets.

ID: What do you think is the number one mistake that distributors make in their consolidation strategies?

BW: This one is easy. The number one thing that people forget about is culture. I have seen so many of these deals fall apart just because of that. It may have the right metrics, it may have the right financing, the right everything eles – but if the people hate each other, it is not going to work. If one guy says we like digital and the other guy says we like analog, it is funny how things In the industrial world get an emotional attachment. For sure you see it in product lines. If a guy loves Gates, that is the only kind of belts and hoses he will use. Or he loves Timken and those are the only bearings he will buy. Beyond the product quality and the reputation of the company, there is an emotional attachment there.

The same thing happens, not surprisingly, in family run businesses. If you get two family businesses together and both of them believe that the founding family has the only way to truth and light, it is not going to work. You really have to assess the approach and the goal of both sides of the acquisition or you will end up with something that is neither fish nor foul, and will be an awful experience. And that happens time after time after time.

ID: What do you hope distributors take away from this session at the Profit Forum?

BW: I hope that they take a look at the possibilities of consolidation, either as being a leader or a participant in a consolidation, take away a positive outlook on what can happen. Well done, and right now is a great time to do it, because we are in-between technologies, the use of the internet and brick & mortar stores. There is going to be some companies that have figured this out, and right now is a great time to look at consolidation as a way to strengthen yourself as a way to take advantage of these things. When you think about distribution in the future, you don’t want to try and guess what distribution in the future is going to be. What you want to do is give yourself a handful of option. So that your company can move in one direction or another as it becomes more evident. The best way to do that is to give yourself a broader view of the market. That can come most easily from consolidation – most easily and most cheaply.

This is a fantastic time to be in industrial distribution – I think it will consolidate at least by half in the next ten years. By half. 50%. If you want to be part of that 50% that is still here, this is a great time for you to do something about it. I do believe that 50% contraction is really due to the invasion of alternate forms of getting product and information. You really need to have that broad base – your organization needs as board of a base as it can so that it can turn whichever way the end users decide it should turn.

Interested in what consolidation could mean for your business? Bill will be presenting at the Distribution and Manufacturing Profitability Forum on June 10th in a session called Consolidation Realities: A Guide To The Minefields Of Building Companies Through Acquisition. Submit any questions you have and Bill has agreed to answer as many as he can at the end of his session on June 10th. You can submit your questions in the comments below.

Register for the Distribution and Manufacturing Profitability Forum here: www.distributionmanufacturingforum.com.

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