2021 is likely to be the year many wholesale distribution businesses find themselves on the end of an M&A approach. In today’s uncertain business climate, robustly tech-enabled, data-driven targets are especially attractive to buyers and stand best placed to maximize their company valuations. Here’s why.
New year, new challenge
Still in the midst of Covid restrictions, businesses across US industry are facing up to the potential commercial realities of the next normal. The ongoing crisis has led to polarized outcomes for businesses. While some, blessed with the appropriate financial resources, bandwidth and capabilities, have been able to invest in new technologies and processes to help them quickly pivot, diversify and position for growth, many others have been pushed to the brink by production shutdowns and an inability to embrace e-commerce. Those in the latter group are likely to be questioning their viability as a going concern.
M&A comes to the fore
Against this backdrop, commentators across the board are predicting a surge in M&A activity this year, as growth companies take advantage of the opportunity to snap up faltering competitors while others aiming for an exit route look to position themselves in the best light to be acquired.
In recent analysis, for example, advisory firm, Deloitte, found that M&A executives believe dealmaking will be an important lever as businesses look to recover and thrive in the post–COVID-19 economy. Indeed, the research found more than half of US dealmakers (61%) expect M&A activity to return to pre–COVID-19 levels within the next 12 months.
Separately, PwC research shows that half (53%) of US executives say their companies plan to increase M&A investment over the year ahead.
Interestingly, the Deloitte research also found that interest in foreign M&A markets is down with dealmakers expected to focus on domestic targets.
Distributors in the M&A spotlight
The wholesaler-distributor sector is in the midst of a historically high level of merger and acquisition activity. Indeed, according to specialist wholesale distribution sector media title, MDM, the last month of 2020 saw a staggering 34 deals involving distributors or manufacturers that sell through distribution — by far the busiest month of the year.
The deal momentum has continued into this year with a number of high-profile deals proceeding in January. These include big ticket international moves such as power management company, Eaton agreeing to acquire Tripp Lite, a Chicago-based power and connectivity solutions provider, for $1.7 billion through to smaller, national acquisitions like Texas-based landscape distributor Heritage adding family-owned Ohio-based distributor, Wolf Creek Co. to its growing portfolio.
The data premium
When it comes to businesses assessing the credentials of potential acquisition targets as well as firms who are seeking to ready themselves for sale, excellence in data provision is becoming an increasingly important differentiator.
As PwC outlines in its 2021 M&A Outlook, “companies that invest in innovation and technology during times of crisis can emerge stronger, from increased efficiency to new products and services that disrupt the market. COVID-19 already has started driving transformation in multiple sectors, and companies need to determine which technologies will keep them competitive in a still-uncertain economy.”
We are seeing this mindset increasingly in evidence in our daily work with distribution businesses across the nation, who recognise that embedding sales enablement software in their business will not only lead to better customer relationships, more informed sales strategy and bottom-line gains, but crucially, significantly elevate their overall credentials in the eyes of the marketplace.
From an M&A perspective, the advantages work both ways. For businesses being acquired, the ability to demonstrate a solid data foundation within the organization can support and justify higher price valuations. Demonstrating your company holds robust, solid data on accounts, purchase behaviours and key stakeholders can also increase the likelihood of a deal making it over the line.
Buyers acquiring a business where sales enablement technology is embedded can also benefit from accelerated payback on their investment as well as the ability to quickly and easily understand the untapped revenue potential within a fresh customer base. The acquisition of a robustly data-enabled business can also present opportunities to standardize systems and we have already seen a scenario where a smaller business using sales-i to do better business has effectively ‘upsold’ the solution to the wider buying company.
While businesses will be hoping for a swift end to Covid restrictions, the months ahead promise to be characterized by continued uncertainty as they plot a viable way out of the crisis. When it comes to bolstering their overall credentials in an acquisition-hungry market, however, one thing is abundantly clear. M&A executives set greater stall in a company’s data provisions than ever before, with organizations that are able to demonstrate they have established and embedded data management solutions - facilitated by sales enablement platforms such as sales-i - at a significant advantage when it comes to maximizing their saleability and value to potential acquirers.
A buyer’s market?
In our next piece on this issue, we’ll focus on the perspective of acquirers, outlining what businesses typically look for in potential targets and why robustly data-enabled businesses making best use of sales enablement technology are a particularly attractive proposition for would-be buyers in the long term.
This article is the first in a series of three on the topic of mergers and acquisitions.
Read the second article here: How sales enablement software can create post deal value for company buyers.