Articles

specialty distribution M&A

When engaging in the purchase or sale of a specialty distribution company, there are specific concerns and hurdles that might not exist in other types of transactions. Here are some of the factors that buyers and sellers should keep in mind if they’re considering specialty distribution M&A.

Specialty Distribution: A Diverse Assortment of Industries

The label of “specialty distribution” covers a wide range of industries, end markets, and business models. It could refer to an actual trucking company that moves a specific type of product, but it could also apply to a company that distributes many different types of products (a company that distributes pool tables and game-related furniture would fall under the specialty distribution label, for example).

The common thread in specialty distribution companies is that the dynamics of a specialty distribution M&A transaction can be quite different from a transaction involving a more traditional company. If someone owns a manufacturing company, for example, they have a manufacturing process, a large number of assets, raw materials, and costs associated with these things. A distribution company’s goal is to move — rather than to make — products. That’s why it’s essential to work with an investment banking firm with experience in specialty distribution M&A transactions.

What Makes a Distribution Company Attractive to a Buyer?

If you’re a business owner planning to sell, it’s essential to understand what makes a company attractive to a potential buyer. When it comes to specialty distribution M&A, buyers are going to look at the company’s process. They want to know what a distribution company’s “special sauce” is in terms of how they interact with their customers and how they make it easy to purchase their products. A buyer will want to understand how the company keeps highly sought-after products in stock and is able to deliver them on time. 

Most of all, buyers want to understand what a distribution company provides to their customers that competitors do not. What does a company do to give that additional level of service to set them apart from the rest?

In addition to this, a potential buyer is going to look at factors such as the future growth opportunities for the company — will those opportunities plateau out and fall off or continue to expand? Are there new areas to move into? Is there a diversified customer base? Having an excellent product offering is also important, as is having consistent revenue. It’s essential that a potential buyer understand a company’s business model and sales cycle. A company that distributes pool tables, for example, will have more inconsistent repeat business than an apparel distributor that has products that are more frequently replaced.

How Does MelCap Help with Specialty Distribution M&A?

On the sell-side, we frequently see three types of specialty distribution clients. The first are entrepreneurs who are simply feeling burned out. They’ve grown the company, maxed out their capabilities, and need help scaling the business. The next type of seller is someone who is ready to sell because they want to retire. 

Occasionally, we’ll work with a company that’s experiencing financial distress. We’ll help them navigate through that process. Once we find the right buyer, the company comes out on the other side stronger and ready to move forward.

The importance of working with an organization like MelCap is that we help our clients move through the process of pre-sale planning. Doing the proper research well in advance helps you execute well when you do sell the business. In a specialty distribution M&A, we work with our clients to understand the current market dynamics so they can absolutely know what their company is worth. We also leverage our databases and industry information to find the ideal buyer.

Once a business owner understands their company’s real value and what a potential buyer will look like, they can decide how to move forward — whether it’s going ahead with the sale right now or using the information gathered to build a stronger company to sell in the future.

By Matt Roberts

Matt is responsible for leading transactions, developing offering memorandums, financial analysis, and preparing financial modeling, conducting industry research, drafting proposals, and presentations, along with other marketing materials. He resides in North Ridgeville, Ohio with his wife and three children.

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