The Shifting Landscape of Mergers and Acquisitions In Distribution

This week marks the start of a new Expert Series on IndustrialSage–– Brennan Industries presents “Making Connections,” hosted by Kenisha Johnson! For the show’s first episode, Singer Equities’ CEO Sam Petillo sat down with the Brennan Industries Executive Vice President, Brad Rico, to discuss how the shifting market landscape is affecting distributors and manufacturers alike–– particularly when it comes to mergers and acquisitions.

 

 

WHAT IS SINGER EQUITIES’ HISTORY IN THE M&A WORLD?

Singer Equities is a full-service hose, conveyor belt, fitting, and gasket company with 50 locations scattered all over North America; but their company actually holds several different brands within the Singer name. Yet because they believe in speed and autonomy at the local level, Sam insists that one of the most important parts of Singer Equities’ acquisitions is to keep the culture, employees, and even the names of the various companies that they bring into their fold.

“No one in the rubber industry takes themselves too seriously.”

“We like to keep the name and the culture and the capabilities on the local level because we only buy healthy companies,” he shared. “And we want to continue in that tradition.

“What I love most about my job,” he added, “I love the people that I work with… There’s a lot of smart people in our company that complement what I do, and I feel that that’s a strength.” Every acquisition that Singer Equities makes is with a different company that has different skillsets that can help to support Singer’s larger goal. And, according to Sam, building up those relationships with new vendors is one of his favorite parts of his work; as well as the unexpected elements that his new coworkers may bring to the table. Thanks to them, he’s always learning new things.

And as much as they all work hard, they also do have a lot of fun together. “No one in the rubber industry takes themselves too seriously, as Brad and I always say to each other,” he laughed.

 

WHY ARE SO MANY SMALL, INDEPENDENT DISTRIBUTORS SELLING THEIR FAMILY BUSINESSES RIGHT NOW?

Trying to comprehend or even predict the shifting landscape of the manufacturing and fabrication industries has become a fairly regular practice for individuals like Sam and Brad. “It could be that the next generation isn’t willing to take over,” Sam pointed out.

Brad agreed: “These entrepreneurs are at the age where they’re ready to retire,” but they may not have even started to prepare or train their future leaders in the first place, and, “there might not be a legacy or someone to take over that company for them.” Now the founders or owners of many industrial businesses are realizing that they’re at a tipping point, much like the housing industry.

“It could be that the next generation isn’t willing to take over.”

“It’s either sell, or maybe be eaten down the road,” Sam admitted. Now is the best time to do it, considering the economic downturn that continuously lurks on the horizon–– and especially considering the amount of capital it requires as well. Money has to go into either competing with big conglomerates like Amazon, or into a more talented sales force, or into more inventory… and the list just keeps building. “It just costs a lot more money to do business nowadays, and that could be another reason why they’re looking for an exit opportunity.”

 

HOW ARE THESE MERGERS SHIFTING THE LANDSCAPE OF THE INDUSTRY?

There’s no doubt that these mergers are leaving an impact, Sam confirmed–– especially within the last decade. “With revenue and profitability so high right now in our space, we have seen a lot of increased acquisition activity as of late,” he confirmed.

Thankfully, Singer Equities has been on the acquiring end, “so we can control our own destiny and purchase very strong and very profitable companies to make us stronger.”

But he acknowledged that this landscape is definitely a ‘survival of the fittest’ situation that weighs mainly in the favor of larger companies who can simply collect more and more additional businesses to survive. They can compile their own growing raft, as it were, to face rising tides that threaten to sweep away smaller entities.

That’s not to say that there aren’t small, successful distributors out there with strong local services and capabilities–– “but it’s very difficult for them to compete against the larger companies that have been acquiring others in the space,” he clarified. Brad added, “It’s changing how we have to deal with [small] companies.”

“This could be the third or fourth down cycle to our industry, and they might not have the stomach to live through another one.”

That existential threat of seeming annihilation in the business world is also one of the reasons why Brad views Singer Equities’ merger practices as so valuable and unique. “When they do acquire these companies, a lot of those entrepreneurs are staying on board,” he pointed out. Singer isn’t just interested in the revenue from these businesses–– but also the experience and expertise of their knowledge base. “And that technology and that information that they’ve brought to this industry, it’s staying with them. That’s kind of unique, and that’s special.”

 

CAN SMALL INDEPENDENT DISTRIBUTORS HOPE TO SURVIVE THIS MARKET?

Despite the often bleak outlook, Sam and Brad both believe that there’s hope for local distributors. Sometimes a company’s specialized niche can give them a great advantage against more generalized competitors–– whether it’s because they fabricate a specialty product, or because of the targeted clients or geographical market they’ve cornered.

In pretty much every case, Brad emphasized, any small businesses that are flourishing right now can attribute that to one particular thing: “They have great relationships.” More specifically, they’ve built very strong bonds with their suppliers as well as their customers that have endured despite the ups and downs of the last few years..

“Smaller companies, they do have one very important thing, the ones that are thriving right now. They have great relationships.”

The more likely businesses that are in danger are the ones who, “read the tea leaves,” as Sam put it. “This could be the third or fourth down cycle to our industry, and they might not have the stomach to live through another one,” he admitted. That’s one of the main drives behind the rise in acquisitions in the distribution and manufacturing industries right now.

 

WHAT COMPANIES LIKE SINGER AND BRENNAN LOOK FOR IN THEIR ACQUISITIONS?

Sam explained that Singer’s goal in acquisitions is always to bring successful, profitable businesses into their fold–– and then to keep on as many of the original teams and tactics of that small company as possible. They especially prefer to keep the original owners onboard for at least a few years, “but [we] do understand that the owners are selling because they have an eye on retirement.”

Additionally, if a small business wasn’t already preparing a new leader or set of leaders in anticipation of that transition, then Singer Equities looks for that talent–– both from within the business and possibly from without if necessary –– to train them and guide the continued growth of the company.

And similar to the Singer tactic of acquiring a pool of complementary businesses that can support one another through variety, Brennan also targets companies with a broad variety of services to expand Brennan Industries’ offerings. Their manufacturing footprint is expanding worldwide, to begin producing fittings or other products in any area where their distribution is growing to reach. “We’re trying to do more manufacturing where the product is being sold,” he explained. That way, rather than having to ship worldwide, they can employ their local branches to create and deliver product in less time, with a better and more personal connection to the recipients.

 

WHERE DOES THE MARKET LOOK TO BE HEADED IN THE FUTURE?

While Sam does expect to see a slower rate of growth in the near future, he’s largely optimistic. “I don’t think there’s a recession looming,” he admitted. Retail may slow down, but he expects steady, strong progress in fields like construction, agriculture, aggregate, chemicals, mining, and fuels.

In addition to that, Brad also shared that much of the business he’s witnessed is growing more focused on domestic manufacturing. For him and his team at Brennan, that means a centralized U.S. presence–– even as their footprint is expanding worldwide.

They’re not the only ones, either. Industrial companies everywhere are reconsidering their offshoring practices. Now they’re reshuffling their plant locations, to rely less on international shipping and more on establishing an in-country presence wherever their products are sold. “We see a lot of manufacturers either increasing their plant capacity or even announcing new plants that they’re building across the globe,” Sam agreed.

Ultimately, the goal of both Brennan Industries and Singer Equities is to serve their clientele well at the end of all this–– because neither business would last very long without maintaining a strong relationship with their customers. “We’re not pulling back on [inventory] yet because, to Brad’s point, we want to continue to service our customers to the best of our ability,” Sam observed.

In fact, for both companies, all of these trends in the industrial landscape are leading to a greater focus on establishing an increased inventory… and that doesn’t just include product inventory, but staff inventory too. “We’re attacking younger individuals and trying to ‘lure’ them into our company,” Brad joked. It’s vital for any company’s longevity to recognize good talent, and compensate their workers well in order to keep the business firmly established into the future.

“Our employees… got us through the pandemic, and we rely on their grit to get us through any times ahead.”

“We’ve increased the capabilities in our training programs as well, especially this past year,” Sam shared. “We’ve hired an outside consultant to put our top leaders through a leadership training program that lasted four months.” They’ve even hired outside recruiting firms to help them expand their network to find good candidates.

“We… rely on the strength and commitment of our employees through the tough times,” Sam insisted. It’s also vital not to forget that those employees include all of the teams that Singer has acquired as valued partners over the years.

“They got us through the pandemic, and we rely on their grit to get us through any times ahead that might be challenging for our company,” he confirmed. “Since we’ve lived through the pandemic which was probably one of the worst downturns I’ve ever seen and managed a company through, I think we have a playbook now that will prepare us for anything to come.”

 

 

Thanks for reading. Don’t forget to subscribe to our weekly newsletter to get every new episode, blog article, and content offer sent directly to your inbox.

Sponsored by Optimum Productions