Mergers and acquisitions activity is booming in the distributor space. What was once a fragmented, highly specialized, largely regional industry is quickly evolving as consolidation takes hold. The reasons driving this acquisition spree are many, but the primary goals of these investments boil down to driving scale and (inorganic) growth.
The stakes are massive. The US Census Bureau estimates 2022 sales (the most recent full year available) at over $11.3 trillion. This is generated from more than 400,000 wholesalers and distributors in the United States employing over 6.1 million people as of September 2024. The sheer number of players in the space and the amount of dollars up for grabs creates abundant opportunities for ambitious businesses to expand their offerings, takeout competitors, and capture market share.
That said, mergers and acquisitions come with significant risk. Across all industries, Harvard Business Review estimated that between 70%-90% of acquisitions end in “failure.” What constitutes failure and the reasons behind this are many. Financial considerations sit at the forefront. This includes misvaluing the target and overpaying on the initial transaction. This also extends to the backend of the transaction when an acquisition fails to meet financial projections for revenue, sales growth, or cost takeout. Cross-cultural integration issues can be a minefield for discord, especially when those at the acquired entity must realize they no longer control their own destiny. Sometimes factors beyond a company’s control, like regulatory changes or shifting economic conditions, can negatively impact an acquisition.
In these complex deals, digital operations, including commerce, often take a backseat to more tangible concerns like rebranding, addressing staffing redundancies, and consolidating the business’ physical footprint. This can be a mistake. Regardless of the percentage of revenue flowing directly through digital channels, analyst firms have estimated that 80% of all B2B sales interactions take place through digital channels. Properly addressing the digital aspects of the business can be a key factor in determining success and failure.
When it comes to delivering digitally, there are four primary areas of concern: technology, data, marketing (including marketing automation), and customer experience. Whether rolling an acquisition into the parent company or allowing the brand to operate independently, each of these factors need to be addressed to maximize value from the transaction. When done properly, this digital alignment can equip distributors to better serve their customers in the present and be ready to face a digital-first future.
To encapsulate best practices, ideas, and strategies for optimizing digital channels post-merger or acquisition, we’ve tapped into our collective expertise to create an eBook: M&A in Distribution: A Playbook for Optimizing Digital Commerce.