What’s Your Distribution Company Really Worth? 3 Considerations

Consolidation in wholesale distribution has remained strong in part due to a wave of owner-operators wanting to move on to the next stages of their lives. As part of their succession plans, some are selling to regional or national consolidators.

For distributors looking to sell, IRCG Managing Partner Mike Marks emphasizes that it’s critical to understand what their businesses are really worth. It’s not uncommon for there to be a gap between what a business is worth and what a company expects or wants out of a deal.

Marks recently discussed industry consolidation and exit strategies in presentations for the Material Handling Equipment Distributors Association (MHEDA) and the National Association of Electrical Distributors (NAED).

During his presentations, Marks and his panelists provided these takeaways:

• The value of your business has nothing to do with how much money you want to walk away with. Don’t make an “emotional data-free decision,” Marks says. The value of the business is not connected to how many years you’ve put into the business. “The two things have nothing to do with each other,” he says. Also, don’t set your expectations based on industry gossip.
• Hire a professional to value and help sell your business. It may take longer, but it’s worth the investment. You only have one chance to do this right.
• The value of a business depends on more than just average multiples in an industry. Factors may include the stage in the business cycle; whether you are offering a turnkey option for an acquirer to enter a market or product category; the culture of the organization compared with the culture of the acquirer; and IT system investments. “All investors are looking at a make-or-buy situation,” says Jim Miller, principal of Supply Chain Equity Partners, who sat on the NAED industry consolidation panel with Marks. For example, if your IT systems are not up to par, the acquirer will have to invest in those. “The more dollars, the more I will look at it and say I’ll just build it myself.”

Interested in learning more about your exit strategy options? Read this blog by Marks on mdm.com: 3 Exit Strategies for Distributors.

Contact IRCG today for more information on how we can help you determine your business’s next steps.