Selling a distribution company

Distributors sell what customers must keep buying, much of it for repair and replacement. Bertram Capital pointed to steady maintenance demand when it bought Motion & Control Enterprises in October 2026¹, and KLH Capital pointed to aging HVAC and plumbing systems when it recapitalized N.H. Yates that month³.

These markets also remain split among many firms. Fastenal sizes North American industrial supply above $140 billion a year and says no one company has a large piece of it⁶. Core & Main says hundreds of regional and niche distributors serve its $44 billion water and fire protection market⁷.

Family succession adds sellers, such as fourth-generation Bender Plumbing Supply, which partnered with Hills Distribution in March 2026⁸. Large strategics are active too. Performance Food Group bought foodservice distributor Cheney Brothers in October 2024⁵, and Home Depot's SRS closed on drywall distributor GMS in September 2025².

A platform buyer builds on you, so it needs strong managers and clean systems. An add-on buyer already has a back office, so it cares most about your customers, territory, salespeople and lines, and it plans on savings. Core & Main credits its acquisition margin gains to product range, purchasing, facility changes and tighter working capital⁷.

The mix you may hear from:

• Sponsor-backed platforms adding branches and lines, such as Hills Distribution⁹.
• Sponsors starting a platform around a regional name, as Kian Capital did with Allen Supply in October 2026¹⁰.
• Minority investors, such as Main Street Capital, which put $39.3 million of debt and equity into founder-led Midstream Valve Partners in August 2026¹¹.
• Family offices and independent sponsors. Ask early where their money comes from.

Performance Food Group describes distribution as a thin-margin business⁵, so small margin moves change earnings a lot. Buyers therefore rebuild your gross profit from invoices, by line, branch, customer and salesperson.

Customer contracts count for less here than in service businesses. Core & Main's customers buy on purchase orders and job agreements, not long-term contracts⁷, so buyers judge loyalty from history. KLH noted that seven of Yates's ten largest customers had bought from it for more than 20 years³.

Performance Food Group says independent customers generally earn the most in its trade and that its own brands are its best earners⁵. In any line, accounts that rely on your service tend to earn more than accounts won on bid.

E-commerce is part of the review too. Fastenal said 62.4 percent of its sales ran through digital channels, including vending and bin programs, in December 2025⁶, and Hills Distribution added online seller PEXUniverse in September 2026¹². Know your share of orders placed online or by EDI.

Have these ready, straight from your ERP:

• Gross margin by line, supplier, customer and branch for three years, before and after rebates.
• Active accounts, tenure, accounts won and lost, and sales per account.
• Top 10 customers and suppliers as a share of sales and purchases.
• Fill rate, on-time delivery, returns and delivery cost.
• Gross profit by salesperson, with territory and tenure.

Your line card may be your most valuable asset, and you may not fully control it. Watsco reports exclusive territory agreements with Carrier, Rheem and Mitsubishi with no stated end date, and other agreements of one to ten years, some limiting competing brands at a location¹³. Performance Food Group, by contrast, typically has no long-term supplier contracts⁵.

Sort each major line into written or unwritten and exclusive or not, then read what it says about assignment and change of control. A form agreement a medical device maker filed with the SEC let it end a distributor's contract on 60 days' notice after a change of control¹⁴. Yours may be gentler or silent.

Paper is not the whole story. A supplier with no written veto can still move a territory or refuse a new owner, especially one carrying a rival brand. Plan when key suppliers hear about a sale and who makes the call.

State law may help. Wisconsin's Fair Dealership Law bars a supplier from ending or substantially changing a covered dealership without good cause, generally requires 90 days' notice with 60 days to fix the problem, and can require a terminating supplier to buy back branded stock¹⁵. Some manufacturer's representatives fall outside it¹⁵. Protection varies by state, so ask your attorney what applies where you sell.

Rebates need their own schedule. Performance Food Group describes supplier rebates and incentives as a major source of profit for itself and its rivals⁵. Core & Main describes programs that pay more as purchases rise and that suppliers can change⁷. Be ready to answer:

• How much gross profit comes from rebates, by supplier and by year?
• When do you book them? Core & Main accrues rebates as purchases move toward volume targets⁷. If you book them when the check arrives, a buyer will restate your margins.
• Which rebates run through a buying group? Many smaller distributors buy through cooperatives⁵, and membership may not pass to a new owner.
• Who keeps rebates earned before closing but paid after it?

Inventory gets tested hard. For rough scale, Census Bureau figures for August 2026 show wholesalers holding about 0.73 months of sales in stock for groceries, 0.87 for electrical goods, 1.69 for lumber and construction materials, 2.02 for hardware, plumbing and heating, and 2.64 for machinery¹⁶. These are broad, preliminary groups, not turns, so your own trend matters more.

Buyers want to know how much stock is alive. Expect them to age it by last sale date, test your reserve and count it. Core & Main reviews excess and obsolete stock each quarter⁷.

Rules can create dead stock too. EPA barred making or importing self-contained residential and light commercial air conditioners and heat pumps using refrigerants with a global warming potential of 700 or more from January 1, 2025, and bars selling them three years later¹⁷. Check your shelves.

Working capital is where this gets settled. Most deals assume a normal level of receivables and inventory, less payables and accruals. The two sides agree on a target, often an average of recent months. Deliver less at closing and the price usually drops by the gap. Deliver more and it usually rises. Negotiate it as carefully as the headline number:

• Seasonality: roofing, HVAC and irrigation supply swing by season, so agree which months set the average.
• Definitions: settle how aged stock, consignment goods, rebates receivable and customer deposits count.
• One-time buys: stocking up before a price increase can distort the average, so keep records.
• Counting: agree who counts, when, and how disputes get resolved.

Owner dependence tops the list. If your best customers call your cell phone and key supplier ties are personal, a buyer has to ask what is left once you stop coming in.

The same goes for an outside salesperson who controls a territory. BLS projects about 123,400 openings a year for wholesale and manufacturing sales representatives through 2035, mostly to replace people who leave or retire¹⁸. What stops one from leaving with the accounts depends on state law. Minnesota, for example, voids most employee non-competes but not non-solicitation agreements, and allows a seller's non-compete in a business sale¹⁹. Ask your attorney.

Other trouble spots:

• Customer concentration: one contractor, manufacturer or chain that is a large share of gross profit.
• Stale pricing: old contract prices and overrides that lose money once delivery is counted.
• Supplier concentration: Watsco buys 62 percent of its products from Carrier¹³. If one line drives your margin, expect questions about how secure it is.
• Weak ERP data: duplicate items, inconsistent costs or margin kept in spreadsheets. If a buyer can't trust margin by customer, it will assume the worst.
• Missing resale certificates: in California, the seller must prove a sale was for resale unless it took a certificate on time and in good faith²⁰. Rules vary by state, so check yours.
• Product rules: refrigerant sellers must check who is buying and keep records for three years²¹. When a registered food facility changes owners, the old owner has 60 days to cancel the registration and the new owner must file its own²². USDA's produce license rules call for a new license on certain ownership changes²³.

Compare offers by the cash you would keep after taxes, the working capital adjustment and money held in escrow or paid later.

Asset and stock deals both appear here. Core & Main bought the shares of two-location Pioneer Supply in January 2026⁷, while PAK Quality Foods bought substantially all of Formosa Foods' assets in July 2025²⁴. The choice affects supplier agreements, liabilities and taxes. In an asset sale, both sides allocate the price across asset classes²⁵, and the IRS treats a sale of inventory as ordinary income or loss²⁶. Ask your tax advisor how LIFO or another inventory method affects the result.

State tax steps can follow. New York treats a sale of business assets, even a whole inventory, as a bulk sale, and the buyer must notify the Tax Department 10 or more days before it pays or takes possession, or risk liability for your unpaid sales tax. A stock sale is not a bulk sale there²⁷. Other states differ, so ask your advisor early.

What to expect in the terms:

• Rollover equity: the leaders of Coastal Supply Group and RJ Murray reinvested in Hills Distribution in January 2025⁹. A stake can pay again if the platform is resold, as Motion & Control Enterprises was after 27 acquisitions¹, but it can also lose value. Contributing property to a partnership for an interest is usually not taxed at that moment²⁸. Get your own tax advice.
• Earnouts and seller notes: tie any later payment to gross profit rather than sales, and spell out how rebates, lost lines and accounts moved to other branches count.
• Your building: you can sell it, lease it to the buyer or do a sale-leaseback. Watsco leases about 16.6 million of its 16.8 million square feet¹³, so buyers are used to renting. Set rent at market before pricing starts, since a friendly rent distorts earnings. A site buyer may order a Phase I assessment, the ASTM standard EPA accepts for environmental inquiries²⁹.
• Your role and the brand: Alro Steel said in August 2026 that its name and daily operations would stay the same under Lindsay Goldberg³⁰, while United Rigging folded into a CERTEX branch in July 2026 and its former owner became operations manager³¹. Put these points in the letter of intent.

A buyer's review reaches back about three years, so start now. Nearly all of this is worth doing even if no sale follows:

• Gather every supplier agreement and get important unwritten lines into writing.
• Build a rebate schedule by supplier and accrue rebates monthly.
• Clean the ERP so margin reports come straight from the system.
• Reprice or drop money-losing accounts a year ahead, so better margin has a track record.
• Work down dead stock and set a written reserve policy with regular cycle counts.
• Move accounts off your desk: pair every owner-held relationship with a manager or salesperson for a full year.
• Have counsel review sales pay plans and non-solicit terms state by state.
• Organize resale certificates and sales tax registrations in each state where you sell.
• Sign a market-rate lease with any related owner and gather past environmental reports.
• Close monthly on an accrual basis, reconcile to tax returns and support each add-back.