Obtaining a competitive edge in the wholesale distribution industry is a necessary aspect of ensuring a successful growth strategy. With the rapidly changing environment, navigating the uncertain economy, and with increasing competition from online entities like Amazon, it’s important that distributors look for ways to optimize their growth strategy or business plan in order to gain a competing advantage and remain viable.
From optimizing products and broadening inventory, to expanding consumer demand and ensuring the business aligns with current market trends, there are many formulas that distributors utilize to grow their company. One such strategy that can also play an important role in growth is through the process of mergers and acquisitions.
A Quick Introduction to Mergers & Acquisitions
To understand the complex dynamics of mergers and acquisitions in business, one might think more simply of the companies in play as properties and the M&A transactions as what brokers might handle in real estate.
Sometimes, the property is purchased outright with full ownership transferred, where the purchasing party has full control to tear down walls or redesign layouts as desired.
Other times, the property ownership is transferred to another party, but under the stipulation that the existing structure remains intact. And in other cases, one property might be purchased by the owner of an adjacent property in order to combine the two properties into one.
In a simple acquisition, for example, the acquiring company obtains the majority stake to own the other company based on an agreeable purchase price, but it does so without changing the name or altering the organizational structure of the acquired company.
These acquisitions can create a new company altogether, or become one owned under the parent company. Many businesses also consider a path of merging to have greater odds of success when they are related entities that offer similar products and areas of focus.
There are many different reasons for taking a chosen path and different situations that lead to various types of mergers and acquisitions.
In the case of a common merger, an amenable deal is often made when the leadership and shareholders of both companies consider value creation and agree that the sale should proceed, supporting the acquisition process when joint ventures would be in the best interest of both entities.
When the acquisition of a company is done by a subsidiary of a purchasing company, it’s commonly called a triangular merger.
Whatever the M&A strategy and whatever the case for the merger or acquisition to take place, the outcome is most often meant to improve circumstances for all parties. Often, private equity firms can help identify and evaluate potential targets that align with their investment strategy.
No matter the path taken, though, improvement and change are the primary driving forces for these circumstances. Even in more hostile situations, the transaction is one that seeks a transformation of some kind, whether the target company might be undervalued or shareholders want to see a significant change in the business.
The Importance of M&A in Business Growth and Examples of Success
The M&A process is a powerful tool in business to bolster capabilities, to remain viable in competitive markets and add significant value. Through the strategic process of mergers and acquisitions, businesses can gain numerous advantages.
Depending on market conditions, acquisitions can help expand market reach, diversify product or service offerings, allow businesses to enter into new geographic locations, with the acquired firm introducing different customer segments, and it can help drive innovation and growth.
Mergers and acquisitions often lead to operational synergies, where combined companies can streamline operations, reduce duplication, and eliminate inefficiencies. This synergy results in significant cost savings, boosting the overall profitability of the merged entity.
Additionally, M&A activities enable companies to gain access to valuable intellectual property, research, and development capabilities. By acquiring innovative startups or tech companies, established businesses can stay ahead of the competition and enhance their own technological expertise.
Mergers can strengthen competitive advantage through the consolidation of resources, with their combined expertise, and by leveraging each other’s strengths. This enhanced competitive edge not only helps companies maintain their market share but also allows them to explore new opportunities for growth.
When executed strategically, these transactions can be powerful catalysts for business growth, where companies can position themselves for long-term success in the dynamic global marketplace.
As demonstrated by these success stories of leading companies, the synergy created through M&A activities drives innovation, fosters growth, and creates value for businesses and their stakeholders alike.
These are just a few examples of mergers and acquisitions successfully sought and transacted for a variety of distribution businesses in their efforts to remain viable, strengthen their competitive advantage, and expand market reach:
- SRS Distribution recently announced the acquisition of Washoe Building Supply Inc., a distributor of residential & commercial roofing products, further expanding their foundation in the roofing industry to gain a larger reach into the Southern Georgia and Florida markets.
- Singer Industrial recently acquired TS Products and Capital Rubber & Gasket in a strategic move that will expand operations across the United States and help to further drive organic sales growth within the North American demographic.
- Not long ago, Univar Solutions acquired FloChem, a leader in chemicals and dispensing systems in eastern Canada, which will strategically help to increase their access to new market segments and provide new service capabilities.
- Graybar acquired Valin Corporation earlier this year, while the leading distributor of automation, filtration, fluid handling, heating and process control products and systems will continue to operate under the Valin name. A strategic move to further diversify Graybar’s portfolio and strengthen its growing industrial automation platform.
The Effects of M&A on the Business, Customers and Suppliers
Whether a private company or a public company is involved, or executed with smaller or larger deals, mergers and acquisitions are transformative events that reshape the business landscape. While these deals often focus on cash flow through financial gains and market consolidation, their impact reverberates far beyond the boardroom, affecting many things from human resources and management, to customers and the suppliers of the involved companies.
Impacts on Operations
Mergers can lead to operational efficiencies, allowing companies to deliver products or services more effectively. This streamlined approach often translates into cost savings for businesses, enabling them to offer competitive prices to customers. Additionally, the infusion of innovative technologies and processes post-merger can result in better products and services for consumers.
Expansion in Product Lines
Successfully navigating a merger and the consolidation of companies can also lead to diversification and expansion of product portfolios, offering customers a broader range of choices. This diversification often arises from the complementary nature of the merging companies’ products or services.
Effects on the Supply Chain
On the flip side, mergers can disrupt established supply chains, leading to delays or interruptions in the delivery of goods and services. This disruption can affect both customers and suppliers, leading to dissatisfaction and financial strain.
Impacts on the Market
When two major competitors merge, it can also reduce market competition, leading to higher prices for customers. Additionally, suppliers might face increased pressure to offer lower prices to the merged entity, impacting their profitability.
How Technology Can Help Streamline M&As
There is also the integration of the company, its people, processes and software to consider. Something that may not be front of mind when looking at the pathway of mergers and acquisitions is the importance of ensuring all processes are integrated and streamlined.
While M&A integration may seem, in the short term, a type of review that can be addressed further down the line, the challenge of using disparate systems can cause disruption in communications, order processing, inventory management etc. This detail is well worth noting for the difficulty or the ease in which this can happen.
While mergers and acquisitions can offer many potential benefits, the disruptions caused during integration can lead to challenges for information management, and more specifically customers and suppliers.
Therefore, before final decisions are made, it is crucial for businesses and executives involved in M&A project management to navigate these transitions with care, ensuring that the needs and expectations of both customers and suppliers are met.
Through detailed examination, and by understanding the ripple effects of M&A deals, the executive team can make informed decisions that not only effectively drive growth but also maintain healthy relationships with their customers and suppliers, ensuring long-term success in the marketplace.
Operational Strategies to Enhance Growth
There are alternatives to the traditional avenue of mergers and acquisitions, and with economic uncertainty in the air, taking an alternative path could be the right choice for some companies as they look ahead and begin to navigate the best way to grow their business or increase sales across markets.
Creating the best growth plan and fostering opportunities for your business is largely about prioritizing what you can take advantage of as quickly as possible.
According to a recent market outlook report from Deloitte, businesses in 2023 will have “a continued appetite to create new partnerships and alliances to broaden offerings and access new clients.”
Seeking out a strategic partner to help broaden across key areas of business is a lucrative approach to growth, which has been successful for many companies. In addition, increasing technological advantages and future readiness by embarking on a digital transformation may be the key to success.
Insights From Distribution Industry Experts
During the 2023 Round-Up event in Dallas, Texas hosted by DCKAP, during a very insightful panel discussion with Lisa Pope, President of Epicor and Rajeev Rai, EVP & Chief Technology Officer of SRS Distribution, their discussion delved into some of these topics and the ways in which these top companies have successfully navigated the process of mergers and acquisitions, as well as their thoughts on the growth mindset.
“We try to find three things every fiscal year that are new and different that we’re going to do to try and find growth. It may be moving into a new market, it might be working closer with customers and a partner, or it could be an acquisition.”
— Lisa Pope, on the question of Epicor’s global organization and growth strategy.
While the strategy may come down to acquiring another business in order to foster growth, there are also many things to consider before taking that step. On both the buy-side and the sell-side there are many important considerations.
As Lisa told the audience during her time on the panel, “We do very purposeful acquisitions. If we want to grow, we could grow quickly – get the money, use private equity, fund it, do it. [But] we’ve really taken a different approach from a lot of software companies and said bigger is better if it serves our clients. When you see product gaps, you see an area where we’re not delivering a particular solution.”
The knowledge from the experts here is that while it may be beneficial to take the leap and acquire a big company in order to make your own company even bigger, and taking what may seem like the fast road to growth, it’s important to think of operational due diligence and consider how this move ultimately benefits the customer base.
More about the event: A Night of Celebration at Round Up 2023 in Dallas
If it is the right move, then thinking ahead to ensure that the company and its processes are quickly and efficiently integrated is also vital to the success of the acquisition.
During the panel discussion, Rajeev Rai of SRS Distribution also gave some sage advice on the same to companies considering an acquisition by speaking about the importance of integration.
“Our acquisition playbook is the hallmark of our growth strategy. In 2021-22, we acquired about 60+ companies, anywhere from 2 branches to 40 branches, and our strategy is, day one, to integrate with our ERP platform. But we apply pragmatism. Our biggest goal is – do not hurt business, do not disturb the customer experience during the acquisition.”
Also read: SRS Distribution Case Study
Conclusion & Key Takeaways For Distributors
Merger and acquisition (M&A) activities continue to shake up the distribution industry and offer a way for companies to solidify their competitive edge. If under consideration, it’s important to know which route would be best for the outcome to align with your business strategy.
Mergers and acquisitions come in a variety of forms, and in general terms it is not a one size fits all solution. Buyers and sellers may have different needs in seeking best practices and following steps that are best for their success.
Post the pandemic, and in the current global economy, businesses are continuously seeking out the best ways to innovate, a clear understanding of how to create more efficient operations in real-time, and ultimately the best strategies to grow and ensure they remain competitive and survive.
Whether a merger or acquisition is ultimately the best path forward, or utilizing alternative strategies for growth is the ideal route depending on costs and logistics, the equation to calculate remains the same.
What purpose will this growth strategy serve, and how efficiently will the business be able to execute the plan without causing delays, interruptions, dissatisfaction, or too heavy a financial strain?
By knowing the answers to these questions, evaluating risk, compiling all the information and going through a due diligence process, distribution businesses can obtain more insight and more confidently take a firmer step forward to reaching their growth goal.