Distribution Investment Thesis

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August 14, 2023

by a searcher from New York University - Leonard N. Stern School of Business in Tampa, FL, USA

Does anyone have strong views on investing in distribution businesses as a searcher? Distribution (and Industrial Distribution especially) is a highly attractive industry for middle market (and larger) PE firms, but I feel that it is not talked about as much in the search fund space.

Has anyone invested in a distribution business as a searcher and willing to share any details on their experience?

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Reply by a searcher
from University of Western Ontario in Toronto, ON, Canada
I have acquired a niche distribution business in Canada, as well as a bolt-on acquisition 12 months later.

Speaking from experience, I thoroughly agree with Tim's, Edward's and Chris' comments above: creating moats (i.e. exclusivity of regions for product lines), having strong market dynamics and creating customer stickiness is critical. It is true that PE likes distribution, however, they are typically very picky about the kind of distributors they acquire (speaking based on my own experience in PE).
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Reply by a searcher
from Western Illinois University in St. Louis, MO, USA
I am interested in distribution that has certain attributes. anything with medium to high customer integration like vendor managed inventory can be pretty sticky. OR if you have a regionally exclusive sales channel. for example, what emerson does with their industrial automation. if you are running a chemical plant on deltaV automation, there is only one person you can buy from and its open heart surgery if you want to change platforms.
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