Private Equity Firms Buying Distribution Companies

Distribution businesses sit between manufacturers and the contractors, shops and facilities that use their products, and private equity has bought them steadily for decades. A good distributor earns its margin through availability, local relationships and technical know-how, which makes it hard to replace. Many specialty distributors are still family-owned, giving buyers a long list of companies to bring together.

Buyers on this page tend to look for specialty distributors rather than broadline ones. Examples include building products, electrical and plumbing supplies, industrial parts, food service, pool and landscape supplies, and medical or laboratory products. They like businesses with many small customers, exclusive or protected product lines, extra services such as kitting or light fabrication, and a stable base of repeat orders.

In diligence, buyers look at gross margin by product line and customer, inventory turns and obsolete stock, supplier concentration and any exclusive agreements, freight costs, branch-level profit and the condition of warehouses and trucks. They will ask how dependent the business is on one or two manufacturers, since losing a key line can change its value quickly, and whether the company has the systems to handle growth.

Many of these firms build regional or national distribution platforms through acquisitions, so a smaller distributor may join an existing group as an add-on and gain buying power and better systems. Owners should ask whether their brand and branches will stay, how key supplier agreements will transfer, what happens to inside and outside sales staff, and whether the buyer plans to consolidate warehouses.

Supplier consent is worth raising early. Some manufacturers have the right to approve a change of ownership at their distributors, and a buyer will want to know before signing that your most important lines will stay with you.

Greymont is paid by buyers, never by owners. Greymont can help you see which of these buyers are building distribution groups in your product lines and regions today.