SPECIALTY DISTRIBUTION
INDUSTRY UPDATE │ MARCH 2016
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SPECIALTY DISTRIBUTION
INDUSTRY UPDATE │ MARCH 2016
WHAT WE’RE READING
INDUSTRIAL DISTRIBUTORS REACH A FORK IN THE E-COMMERCE ROAD
Industrial distributors are facing a significant challenge from their B2B customers: Provide
a rich online experience that’s similar to a consumer’s online retail experience, or risk
losing them to a manufacturer or competing distributor.
E-commerce has permeated every facet of the industry, fostering faster response times
and tighter margins while increasing expectations for customer service and
value. Customers are branching out. They’re trying new things. Talking with new vendors.
Looking for new opportunities to improve their business. This growing reliance on ecommerce comes at a critical time. Purchasers see little difference between buying
from a distributor or direct from a manufacturer – differentiation and demonstrated
value are critical.
CONTENTS


WHAT WE’RE READING

M&A AND PUBLIC
MARKET TRENDS


NOTABLE M&A ACTIVITY
PUBLIC COMPARABLES &
TRADING VALUATIONS
ECONOMIC UPDATE
GROUP OVERVIEW
Across the Atlantic, industrial output in the 19-country Eurozone grew by 2.1 percent in
January, its fastest growth since 2.3 percent in September 2009. The European Union's
statistical agency, Eurostat, forecasted growth of 1.6 percent. The gain followed two
straight months of decline, including a 0.5 percent drop in December.
Harris Williams & Co.
is a leading advisor
to the specialty distribution
market. Our significant
experience covers a broad
range of end markets,
industries, and business
models. This particular report
focuses on trends and metrics
in the following areas:
 Specialty Catalog
and Direct Marketing
 Branch-Based Distributors
 Route-Based Distributors
 Automotive and Heavy
Duty Aftermarket
 Building & Construction
Products
 Consumer & Food Service
 Industrial, MRO,
and Safety
 Healthcare
 Technology
 Electrical and
Communications
 Alcohol, Tobacco,
and Firearms
Read more from this article here.
CONTACTS
ARROW ELECTRONICS ACQUIRES DISTRIBUTION CENTRAL
Bob Baltimore
Managing Director
[email protected]
+1 (804) 915-0129
The move is an example of Arrow targeting Australia in order to gain a presence to
compete with rivals Ingram Micro and Synnex. Sean Kerins, President of Global Enterprise
Computing Solutions for Arrow said, "This acquisition supports our strategy to expand
Arrow’s portfolio and build strategic capabilities to help meet the evolving needs of our
customers.“
Derek Lewis
Managing Director
[email protected]
+1 (804) 915-0118
The industrial distribution industry’s landscape is radically changing. Old paths to success
have been replaced by new routes to growth and prosperity. Fully embracing ecommerce will light your way to providing indispensable value and ultimately spark longterm customer relationships.
Read more from this article here.
FEBRUARY U.S. AND EUROPEAN FACTORY PRODUCTION RISES AGAIN
U.S. industrial output grew for a second-straight month in February, as the Federal
Reserve on Wednesday said that factory production rose 0.2 percent, following a 0.5
percent gain in January.
The two-month streak of gains comes after declines in four of the previous five months,
hinting that manufacturing is leveling off after a wearisome 2015. It was the first back-toback monthly gain since March-April 2015.
The Colorado-based company is rumoured to have had its eye on Distribution Central
for over a year, but bosses Scott Frew and Nick Verykios have remained coy on any
interest, refusing to confirm or deny despite ongoing industry speculation. But Distribution
Central’s recent success with emerging brands looks to have brought the two parties
closer to an agreement.
Locally, Arrow has around 40 staff in Australia and revenue of approximately $4.2 million
per employee, while Distribution Central operates 130 staff at around $2.4 million per
employee.
Josh Garner
Vice President
[email protected]
+1 (804) 915-0167
Graham Gillam
Associate
[email protected]
+1 (804) 887-6074
Read more from this article here.
www.harriswilliams.com
PAGE | 1
SPECIALTY DISTRIBUTION
INDUSTRY UPDATE │ MARCH 2016
PUBLIC COMPARABLES & TRADING VALUATIONS
Key Trading Stats
As of March 15, 2016
($ in millions, except per share amounts)
SPECIALTY DISTRIBUTION PUBLIC COMPARABLES
LTM Margins
EBITDA
Gross
TEV
Current
Price
$28,493
27,516
14,753
10,925
1,749
873
$792.52
270.01
95.57
30.81
52.49
41.17
Stock Performance
1-Month 1-Year
Change Change
% of
LTM High
TEV/EBITDA
LTM
2016E
Revenue
Growth
3-Yr. CAGR
Automotive & Heavy Duty Aftermarket
AutoZone, I nc.
O'Reilly Automotiv e I nc.
Genuine Parts Company
LKQ Corp.
Dorman Products, I nc.
Uni-Select I nc.
Median
Mean
21.9%
21.9%
8.3%
11.9%
20.2%
6.6%
52.5%
52.3%
29.8%
39.4%
38.4%
29.7%
16.0%
15.1%
38.9%
40.3%
9.1%
7.2%
8.6%
6.8%
4.9%
4.3%
30.6%
28.0%
24.5%
23.9%
25.3%
13.2%
7.0%
6.8%
24.9%
24.2%
4.9%
3.6%
1.4%
2.9%
17.7%
15.1%
7.2%
14.6%
3.3%
3.2%
14.8%
13.7%
15.2%
23.6%
15.5%
8.2%
6.5%
42.4%
50.4%
45.2%
28.1%
28.2%
15.2%
13.8%
42.4%
38.9%
2.3%
2.6%
8.7%
9.1%
2.8%
6.0%
5.4%
28.3%
26.2%
12.4%
2.8%
5.1%
12.4%
15.7%
8.6%
6.7%
8.8%
23.1%
26.2%
(1.3%)
19.1%
25.6%
(0.4%)
24.7%
13.8%
21.3%
98.6%
97.1%
98.9%
95.5%
97.7%
76.7%
12.5x
15.8x
11.7x
12.9x
10.8x
9.4x
12.0x
14.3x
11.1x
11.5x
10.0x
9.1x
6.1%
8.8%
5.5%
20.4%
12.1%
(9.0%)
8.7%
12.0%
20.2%
17.3%
97.4%
94.1%
12.1x
12.2x
11.3x
11.3x
7.5%
7.3%
11.9%
10.6%
3.5%
18.9%
46.2%
(10.0%)
6.0%
(12.0%)
6.3%
35.9%
63.2%
(53.1%)
86.6%
87.4%
96.6%
88.6%
58.2%
43.7%
12.5x
11.0x
12.1x
17.2x
16.8x
5.3x
8.9x
10.1x
11.3x
10.7x
7.2x
5.8x
2.5%
0.8%
6.2%
11.9%
49.3%
9.3%
11.2%
13.5%
6.2%
7.7%
87.0%
76.8%
12.3x
12.5x
9.5x
9.0x
7.8%
13.3%
6.5%
14.4%
9.1%
43.2%
18.9%
(47.3%)
27.0%
2.9%
99.7%
50.6%
88.0%
85.0%
12.5x
8.0x
15.4x
6.9x
12.0x
8.6x
12.8x
6.6x
4.0%
14.1%
8.7%
42.8%
11.7%
18.3%
10.9%
0.4%
86.5%
80.8%
10.3x
10.7x
10.3x
10.0x
11.4%
17.4%
4.5%
10.2%
7.9%
4.5%
26.3%
(5.7%)
14.7%
(1.6%)
(5.6%)
(61.4%)
87.3%
99.8%
96.6%
89.9%
35.1%
10.2x
15.2x
10.6x
9.0x
7.3x
10.4x
14.8x
10.8x
9.5x
10.0x
3.7%
7.3%
6.4%
2.5%
4.4%
7.9%
10.7%
(5.6%)
(12.0%)
89.9%
81.7%
10.2x
10.5x
10.4x
11.1x
4.4%
4.8%
3.3%
2.9%
5.3%
5.6%
4.7%
(32.0%)
(9.9%)
20.3%
(9.3%)
18.4%
64.0%
88.2%
98.3%
84.5%
98.6%
9.9x
10.4x
15.9x
11.1x
10.7x
8.4x
9.4x
14.8x
11.8x
10.3x
15.3%
2.4%
5.9%
14.6%
3.3%
4.7%
4.4%
(9.3%)
(2.5%)
88.2%
86.8%
10.7x
11.6x
10.3x
10.9x
5.9%
8.3%
Building & Construction Products
CRH plc
Wolseley plc
Watsco I nc.
Beacon Roofing Supply, I nc.
Builders FirstSource, I nc.
Boise Cascade Company
Median
Mean
$30,465
14,902
4,271
3,398
2,952
834
$27.21
54.20
128.51
38.99
9.71
17.39
Consumer & Food Service
Sysco Corporation
United Natural Foods, I nc.
Core-Mark Holding Company, I nc.
SpartanNash Company
Median
Mean
$29,807
2,436
1,946
1,546
$46.04
39.57
80.77
28.80
Industrial, MRO & Safety
W.W. Grainger, I nc.
Fastenal Company
MSC I ndustrial Direct Co. I nc.
Applied I ndustrial Technologies, I nc.
DXP Enterprises, I nc.
Median
Mean
$15,406
13,918
4,757
1,920
598
$220.64
47.42
72.20
40.97
17.20
Healthcare
McKesson Corporation
Cardinal Health, I nc.
Henry Schein, I nc.
Patterson Companies, I nc.
Owens & Minor I nc.
Median
Mean
$42,434
30,047
15,000
5,473
2,908
$156.00
81.10
167.41
44.87
39.83
PAGE | 2
SPECIALTY DISTRIBUTION
INDUSTRY UPDATE │ MARCH 2016
PUBLIC COMPARABLES & TRADING VALUATIONS
Key Trading Stats
As of March 15, 2016
($ in millions, except per share amounts)
SPECIALTY DISTRIBUTION PUBLIC COMPARABLES
LTM Margins
EBITDA
Gross
TEV
Current
Price
Stock Performance
1-Month 1-Year
Change Change
% of
LTM High
TEV/EBITDA
LTM
2016E
Revenue
Growth
3-Yr. CAGR
Technology
Arrow Electronics, I nc.
Av net, I nc.
I ngram Micro I nc.
SYNNEX Corp.
Tech Data Corp.
ScanSource, I nc.
Median
Mean
4.5%
3.8%
1.8%
3.5%
1.4%
3.6%
13.0%
11.4%
6.3%
8.9%
4.9%
10.3%
3.5%
3.1%
9.6%
9.2%
$7,814
6,963
5,550
4,326
2,551
1,093
$61.69
43.20
36.11
99.03
77.42
38.81
14.8%
10.8%
29.9%
16.0%
21.0%
6.9%
1.6%
(4.0%)
51.8%
29.5%
36.8%
1.1%
94.9%
91.4%
98.5%
99.5%
97.9%
92.5%
7.4x
6.7x
7.2x
9.2x
7.1x
8.8x
7.1x
6.6x
6.2x
8.4x
NA
8.3x
4.5%
2.8%
4.4%
9.0%
1.3%
5.8%
15.4%
16.6%
15.5%
19.5%
96.4%
95.8%
7.3x
7.7x
7.1x
7.3x
4.4%
4.6%
40.4%
26.6%
22.2%
28.2%
(29.5%)
(24.4%)
(37.2%)
(26.7%)
66.7%
70.2%
61.5%
65.0%
8.7x
8.4x
8.8x
12.7x
9.0x
9.0x
8.2x
16.4x
(6.1%)
4.5%
(0.3%)
(7.8%)
27.4%
29.4%
(28.1%)
(29.4%)
65.9%
65.9%
8.8x
9.7x
9.0x
10.6x
-3.2%
-2.4%
Electrical & Communications
Rexel SA
WESCO I nternational I nc.
Anixter I nternational I nc.
Houston Wire & Cable Company
Median
Mean
4.9%
5.7%
5.7%
4.0%
24.0%
19.9%
21.7%
21.4%
5.3%
5.1%
21.5%
21.7%
$6,483
3,584
3,087
157
$13.44
52.41
48.38
6.86
Stock Prices
As of March 15, 2016
TRAILING TWELVE MONTHS STOCK PRICE PERFORMANCE
20.0%
10.0%
0.0%
-10.0%
Automotive & Heavy Duty Aftermarket
Technology
Consumer & Food Service
Industrial, MRO, & Safety
-20.0%
Building and Construction
-30.0%
S&P 500
-40.0%
Healthcare
-50.0%
Electrical & Communications
PAGE | 3
SPECIALTY DISTRIBUTION
INDUSTRY UPDATE │ MARCH 2016
M&A AND PUBLIC MARKET TRENDS
Distribution Trends
LTM EBITDA as of
March 15, 2016
TEV / EBITDA MULTIPLES FOR PUBLIC COMPARABLES
TEV / EBITDA
20x
15x
14x
12x
12x
10x
10x
11x
13x
7x
12x
11x
10x
9x
13x
10x
9x
8x
7x
12x
11x
10x
7x
7x
12x
11x
10x
12x
10x
8x
7x
5x
0x
Dec-15
Jan-16
Feb-16
Automotive & Heavy Duty Aftermarket
Building & Construction Products
Consumer & Food Service
Healthcare
Technology
Electrical & Communications
NET DEBT / EBITDA
Industrial, MRO & Safety
EBITDA MARGINS
20%
4x
3x
2.1x
2x
1.2x
1.5x
1.1x
1.2x
1x
0.8x
0x
EBITDA Margin
3.3x
Net Debt / EBITDA
Mar-16
15%
15.1%
13.8%
10%
6.8%
5%
5.1%
3.2%
5.1%
3.1%
0%
M&A Trends
RECENT M&A AND PRIVATE EQUITY TRENDS

With PE-back exit value growing at a near 20% CAGR since 2010, the seller’s market
extended in 2015, as PE investors sought to take advantage of the frothy multiples
2015 PE-BACKED
EXITS  Total exit value last year came in at a record $554 billion across 2,320 completed
sales

TIME TAKEN TO EXIT 

The median time to exit for PE-backed sales in 2015 came in lower for corporate
acquisitions, IPOs, and secondary buyouts
In 2015, the median was just 5.1 years and that compares to a reported value of
6.1 for all exits in 2014
The median time for exits had increased for 7 years prior to the 2015 decline
PAGE | 4
SPECIALTY DISTRIBUTION
INDUSTRY UPDATE │ MARCH 2016
M&A TRANSACTIONS
Announced M&A Transactions
Announced Target
Description
Acquirer
Private Equity
Involvement
3/15/2016
Meridian I maging Solutions, I nc.
Distributor of office equipment and supplies
Konica Minolta Business Solutions,
U.S.A., I nc.
3/14/2016
U&I ENTERTAI NMENT, LLC
Distributor of packaged softw are and digital game products
Established Brands, I nc.
3/10/2016
Thompson Auto Supply I nc.
Distributor of auto parts
Auto-Wares, I nc.
3/9/2016
Applied Handling Equipment Company
I ncorporated
Distributor of ergonomic and material handling products
Hy-Tek Material Handling, I nc.
3/8/2016
Sertec, LLC
Distributor of protectiv e relays and other specialty electrical equipment
Circuit Breaker Sales NE I nc.
3/7/2016
Perfect Products Company of Michigan, I nc.
Distributor of fasteners, nuts, bolts, and other products
Law son Products I nc.
3/7/2016
Serv ice Experts LLC
Distributor of HVAC equipment
EnerCare Solutions I nc.
P (Seller)
3/7/2016
3i Supply Company
Distributor of industrial and commercial insulation products
Distribution I nternational, I nc.
P (Buyer)
3/3/2016
Charles & Colv ard Direct, LLC, Certain Lulu
Av enue Assets
Distributor of jew els
Yanbal USA, I nc.
3/3/2016
The Progressiv e Group
Distributor of mobile and home electronic products
Patrick I ndustries I nc.
3/1/2016
Liberty USA I nc
Distributor of snacks, bev erages, and other food products
Eby-Brow n Company, LLC
3/1/2016
Office Systems, I nc.
Distributor of copiers, computers, and document imaging products
SymQuest Group, I nc.
3/1/2016
Atlanta Electrical Distributors, LLC
Distributor of electrical equipment
WESCO Distribution, I nc.
3/1/2016
Atlanta Pow ertrain & Hydraulics I nc.
Distributor of hydraulics, pumps, and motors
FORCE America, I nc.
3/1/2016
Midw est Equipment Supply, LLC
Distributor of v ending equipment
American Vending Sales, I nc.
2/29/2016
Joe Johnson Equipment I nc.
Distributor of infrastructure maintenance equipment
Sirit, I nc.
2/28/2016
Haddon House Food Products, I nc.
Distributor of grocery food products
United Natural Foods, I nc.
2/26/2016
Borax Paper Products, I nc.
Distributor of food packaging, paper, and janitorial products
I mperial Bag & Paper Co., LLC
2/23/2016
Vision Dynamics, L.L.C.
Distributor of low v ision and blindness aids
New England Low Vision and
Blindness
2/22/2016
Epperson & Company
Distributor of material handling products
Motion I ndustries, I nc.
2/22/2016
TNT Parts, I nc.
Distributor of heav y duty aftermarket solutions
Tidew ater Fleet Supply, LLC
P (Buyer)
2/17/2016
Europa Sports Products, I nc.
Distributor of sports supplements and drinks
Lone Star Distribution, I nc.
P (Buyer)
2/17/2016
I ngram Micro I nc.
Distributor of I T products
Tianjin Tianhai I nv estment Co., Ltd.
2/17/2016
Missouri Pow er Transmission, I nc.
Distributor of pow er transmission equipment and supplies
Motion I ndustries, I nc.
2/16/2016
Magnuson-Hagopian Enterprises, I nc.
Distributor of automotiv e and industrial finishing solutions
Finishmaster I nc.
2/12/2016
Mauk LLC
Distributor of adv ertising, branding, and promotional products
Augusta Marketing Products, I nc.
P (Buyer)
P (Buyer)
PAGE | 5
SPECIALTY DISTRIBUTION
INDUSTRY UPDATE │ MARCH 2016
ECONOMIC UPDATE
A Snapshot of Key Economic Indicators
As of March 15, 2016
PMI INDEX1
ISM NEW ORDERS INDEX2
62
75
70
56
65
60
50
55
50
44
45
40
38
35
30
32
25
1. A PMI Index figure greater than 50 indicates expansion.
2. An ISM Index figure greater than 50 indicates expansion.
INDUSTRY PRODUCTION INDEX3
U.S. MANUFACTURING CAPACITY UTILIZATION
75
100%
70
65
90%
60
55
80%
50
45
70%
40
35
60%
30
25
50%
3. A Production Index figure greater than 50 indicates expansion.
MANUFACTURING INVENTORIES & BACKLOG4,5
DURABLE GOODS NEW ORDERS6
65
$350
60
$300
($ in billions)
55
50
45
$200
$150
40
35
Feb-11
$250
$100
Feb-12
Feb-13
Inventories
Feb-14
Feb-15
Feb-16
Backlog of Orders
4. A Manufacturing Inventory Index figure greater than 50 indicates
expansion.
5. A Backlog Index figure greater than 50 indicates expansion.
6. Durable Goods New Orders for January 2016. February release
on April 25.
PAGE | 6
SPECIALTY DISTRIBUTION
INDUSTRY UPDATE │ MARCH 2016
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PAGE | 7
SPECIALTY DISTRIBUTION
INDUSTRY UPDATE │ MARCH 2016
HARRIS WILLIAMS & CO.
SOURCES
Federal Reserve
PNC Economic Outlook
Industrial Distribution
S&P Capital IQ
The Electrical Distributor
Magazine
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