For Distributors Only

Are distribution valuations peaking?

August 16, 2006
/ Print / Reprints /
ShareMore
/ Text Size+
The recent acquisition of Hughes Supply by Home Depot set a high bar for valuations of distribution companies. Now may be the best window ever for selling a distribution company. Consider:
  • General stock market averages are trading at a high P/E multiple;
  • A big excess of funds has been raised by private equity firms for doing leveraged buyouts; and,
  • Many distributors are making good profits turbo-charged by inflation appreciation in their inventory that are not taxed if on LIFO, but counted in EBITDA buyout multiple valuations.

What is the specific news on distributor buyouts? What are the trends in both public and private valuations for distributors? What are the specific numbers? All of this information has been compiled and is being shared by a boutique investment advisory company out of Chicago, Starshak/Welnhofer (S/H), in what may become a monthly report. (Their Web site is at http://www.swandco.com)

I bumped into these guys on a deal that we were both involved in and agreed to give them a plug because:
  • They were very competent in advising the common client on the sell side.
  • The report that they put together was totally focused on distribution companies, quite comprehensive and even had some novel valuation methods.
  • The report is free to those who contact the firm at 888-461-1030.

If you do contact them, tell them that I sent you. If you would like to talk with one of the principals, ask for Bill Welnhofer who is the chap that I have been working with.

Otherwise, the big question is how long will these valuation multiples last? But, that question in turn depends on:
  • How long do you think the bubbles will last for global consumption of commodities going into construction and infrastructure?
  • When will we have a U.S. consumer retrenchment due to: energy costs and rising costs of ARMs and home-equity loans while incomes for the bottom 80 percent+ of Americans are not going up?
  • If the U.S. goes into a recession, what will happen to the economies of supply-chain Asia?
  • Then, what will happen to the demand (and speculative price premiums) for commodities?
  • LIFO accounting works great when the economy grows and inventory prices go up, but it cuts the other way when the economy cools and inventory deflates. How do all of these issues affect distributor evaluations and the expansion or compression of valuation multiples?

S/H’s report provides information that should be part of the conversations that we should be having about these economic issue questions.

Links

Did you enjoy this article? Click here to subscribe to ISHN.

Recent Articles by D. Merrifield

You must login or register in order to post a comment.

STAY CONNECTED

Facebook logo Twitter YouTubeLinkedIn Google + icon

Multimedia

Videos

Image Galleries

ASSE Safety 2014 Review

A gallery of photos from the sprawling Orange County Convention Center in Orlando, where ASSE’s annual professional development conference was held June 8-11. All photos courtesy of the American Society of Safety Engineers.

6/26/14 2:00 pm EDT

Realizing ROI from Your Gas Detection Program

This presentation will cover why a safe workplace equates to good business, why keeping workers truly safe from hazardous gases requires a complete gas detection program, and how your investment can ensure an ROI to your overall business.

ISHN Magazine

ISHN_0814cov.jpg

2014 August

Check out ISHN's August issue which features content about pain prevention, forklift operation safety and a preview of the National Safety Congress and Expo.

Table Of Contents Subscribe

THE ISHN STORE

M:\General Shared\__AEC Store Katie Z\AEC Store\Images\ISHN\safetyfourth.jpg
Safety Engineering, 4th Edition

A practical, solutions-driven reference, Safety Engineering, 4th edition, has been completely revised and updated to reflect many of today’s issues in safety.

More Products

For Distributors Only - May 2014

ISHN0514FDO_cover.jpgFor Distributors Only is ISHN's niche brand standard-sized magazine supplement aimed at an audience of 2,000 U.S. distributors that sell safety products. Circulation only goes to distributors. CHECK OUT THEMAY 2014 ISSUE OF FDO HERE

ishn infographics

2012 US workplace deathsCheck out ISHN's new Infographic page! Learn more about worker safety through these interactive images. CLICK HERE to view the page.