Q3 INDUSTRY UPDATE
Omnichannel sales are making the leap from retail consumers to B2B buyers. With this trend, distributors are starting to prepare for an acceleration in online purchases. Consumers will have more access to information and improved processes through e-commerce and mobile apps, while companies will be able to use the technology and data for supply-chain optimization, operational efficiency and data analytics.
Forrester Research estimates that online B2B sales grew from $559 billion in 2013 to approximately $780 billion in 2015, which represents nearly 40% growth in two years, and online sales are expected to surpass $1.1 trillion by 2020.
Watsco, one of the largest HVAC distributors in the U.S., has stated a long-term goal to operate the most innovative suite of technology in the industry. Watsco has built a digitalized catalog of over 300,000 SKUs and mobile apps, and has utilized technology to improve inventory turns, reduce infrastructure costs and optimize fulfillment.
In addition to enterprise computing and e-commerce, the Internet of Things (IoT) is growing in the distribution sector. The number of IoT-connected devices is expected to surpass 50 billion by 2020. IoT can assist distributors in increasing the quality of their relationships with customers by, for example, embedding sensors in equipment to better understand customer usage.
Avnet certainly seems to buy in to this growth in IoT. The company divested its technology solutions operation group (to Tech Data Corporation) to renew its focus on components in new technologies, including IoT. The technology solutions group comprised nearly 40% of Avnet’s revenues in FY 2016, indicating a huge bet on new technologies and a willingness to potentially give up its spot as the number one electronics distributor to Arrow Electronics as it focuses on future strategy.
Key M&A Transactions
In Q3, several large companies experienced top line softness, leading to less specialty distribution M&A activity. However, transaction activity remained strong in the electrical distribution space.
Several large strategic companies made acquisitions, primarily to increase geographic presence.
North Dakota-based Border States Electrical acquired Shealy Electrical wholesalers in order to enter new geographic areas in the southeast U.S. Graybar, an employee-owned St. Louis-based distributor of electrical, communications and data-networking products and provider of related supply-chain management and logistics services, acquired Cape Electrical Supply, which distributes electrical wholesale products to commercial, residential and industrial markets and assists those markets with on-site management. The acquisition complements Graybar’s branch network by filling in locations that were not previously served.
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