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Distribution report | Market overview
How have COVID-19 fears impacted distribution sector M&A deals and valuations, and what lies ahead in the coming months? Oaklins’ distribution specialist Don Wiggins provides the big picture by charting deal volume, stock returns, EV-revenue and EV-EBITDA from 2015 through Q1 2020, as well as recent public company valuation trends.
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The number of completed deals fell by 45% in the first quarter of 2020 compared with the first quarter of 2019. The average transaction size of distribution deals also decreased. A total of 211 M&A deals closed in Q1 2020 for an aggregate reported transaction value of US$5.5 billion, which is significantly less than the US$12.3 billion of closed deals reported for the previous quarter, as well as the US$10.1 billion reported during Q1 2019. The most noteworthy transaction during Q1 2020 was Pattonair’s acquisition of Wesco Aircraft for US$1.9 billion. Wesco, headquartered in California, is a leading global distributor and supply-chain partner in the aerospace industry. Pattonair, backed by Platinum Equity, is one of the world’s largest providers of products and services to the aerospace industry and is based in Derby in the United Kingdom. The combination of Pattonair and Wesco will create a broader, more diversified supply-chain platform that will extend beyond the aerospace industry.
Distribution M&A deals — 2015 to Q1 2020
Valuations have fallen sharply as a result of the COVID-19 pandemic. Trailing 36-month returns have fallen sharply for most industries. Food & beverage distributors have been hit hard with restaurant closures. Industrial & capital goods distributors have likewise suffered from closures and delays in purchasing decisions, as cash flow concerns play a key part in the current crisis mitigation. Consumer goods distributors have been buoyed by the grocers segment, while healthcare distributors’ valuations also remain stable — for obvious reasons.
We look for secular trends that we believe we can capitalize on through our investment model. For example, technology is transforming the factory floor with accelerated adoption of automation, industrial electronics and robotics.ROB HOGAN, MANAGING DIRECTOR, SHOREHILL CAPITAL
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