A Sign Of The Times

Recently we have seen a disproportionate share of ownership changes.  Why is it happening, and what does it mean to you?

Owners sell for a variety of reasons.  I start with owners, as you can have millions of buyers, but until an owner sells, there is no event.  In general, businesses in our industry were slowly getting healthier pre-pandemic.  It is difficult for an owner to get value if business is bad.  The slow recovery had owners thinking about making a sale happen.

With the pandemic and the inability to forecast a real recovery, some of those plans became more urgent.  Maybe an owner was thinking about retirement, or maybe estate planning, or maybe just getting off the roller coaster.

If sellers are undercapitalized, they have limited options.  A sale may be the best way to maximize value in the present tense.  It may also be the best way to protect all stakeholders – employees, customers and vendors.

Financially healthy buyers understand these dynamics and believe that acquisition costs are less.  The time is right.

Increased size and market share provide some benefits, but it is not always the panacea people envision.

In our industry we have experienced some very large buyouts or mergers which did not end well.  Without evaluating the specific reasons for these epic failures, the concept was not bad.  They were/are sticking to core competencies.  They stayed true to the industry.   

Let’s look at some other industries.  The term “conglomerates” described mega size companies who purchased targets in the 60’s and 70’s (sometimes referred to as the “go go years”).  Some did not work out well.  ITT comes to mind.  They bought companies in unrelated industries and eventually had to downsize. 

On the other hand, Warren Buffet and Berkshire Hathaway have a wonderful track record.  The common ingredients are sound management, mature industries, and consistent financial performance.

Banking is another example.  During those 70’s years, there were fears that there would only be a few mega banks left.  But as some banks were swallowed up, other new banks started up.  To the extent that big banks overlooked community needs, these smaller new banks filled that void.

So now our industry. 

If suppliers can provide better product offerings, higher tech services, and overall a better experience, everyone benefits.  If distributors can do the same, ditto.  But just as in the banking examples, niche marketing will continue to thrive.

Customers can benefit, and they need to be judicious in selecting vendors.  It is not just the personal relationship.  Do they consider the financial risks?  Will that vendor be able to satisfy the purchase requirements?  Will that vendor be around if it is a long-term program?

Be not afraid, but do your due diligence.