An Uptick in M&A Activity Signals a Strong Start to 2018

EV / EBITDA multiples traded at levels consistent with 2017 across all four industrial supply segments. Our building and landscape products segment saw the most transaction activity of the group, including a megadeal and an immediate add-on brokered by a private equity firm. We note that our flow and process control segment continues to trade at the highest multiples (consistent with 2017) and saw a majority of its transaction activity from strategic acquirers looking for high precision, value-added applications from segment participants. The strong mergers and acquisitions (M&A) environment in the first quarter can be attributed, in part, to positive industry dynamics, as construction spending continues to rise; as well as broader macroeconomic trends, as the U.S. economy remains strong even through patches of recent volatility. Finally, an increase in financial sponsor transaction activity sets the stage for strategic buyers to ramp up growth opportunities in the second quarter.

Key Takeaways

  • Strong consolidation trends seen in the flow and process control and industrial products segments as industry leaders look to expand their geographical footprint and overall product/service offering
  • Private equity interest in add-on acquisitions and portfolio optimization
  • High capital availability and low borrowing costs buttress an already positive M&A environment
  • Trading multiples among public companies remain strong
  • Active M&A engagement both domestically and internationally
  • Generally positive macroeconomic tailwinds despite patches of domestic volatility

HISTORICAL ENTERPRISE VALUE / EBITDA MULTIPLES1

Industrial Supply Historical Enterprise Value

Industry Statistics

5-YEAR HISTORICAL SHARE PRICE PERFORMANCE

Industrial Supply 5 Year Historical Share Price Performance

Operating and Market Performance

LTM EBITDA MARGIN

Industrial Supply LTM EBITDA Margin

ENTERPRISE VALUE/ LTM EBITDA2

Industrial Supply Enterprise Value LTM EBITDA

Building & Landscape Products

The building and landscape products segment saw a mix of private equity and strategic acquisition activity in the first quarter of 2018, including a financial sponsor mega deal, and a number of publicly traded strategic acquirers looking to expand business activity through alternative to organic growth opportunities. This segment contained the most transaction activity for the quarter, with notable transactions including:

  • Clayton, Dubilier & Rice (CD&R), a private equity firm, agreeing to take building products manufacturer Ply Gem Holdings (NYSE:PGEM) private in a deal valued at approximately $2.4 billion
    • In a related transaction, CD&R entered an agreement to acquire Atrium Windows & Doors from Golden Gate Capital and merge its operations with Ply Gem, strengthening the combined company’s presence within the Building & Landscape Products segment
  • Masco Corporation’s (NYSE:MAS) acquisition of L.D. Kichler Co., a developer of lighting and related products, for approximately $550 million – management notes strategic synergies through an expanded product offering servicing the same end markets

BUILDING & LANDSCAPE PRODUCTS PUBLIC COMPARABLES2

Industrial Supply Building Landscape Products Public Comparables

BUILDING & LANDSCAPE PRODUCTS SELECT M&A TRANSACTIONS

Industrial Supply Building and Landscape Products Select MA Transactions

  

Flow & Process Control

The flow and process control segment exhibited the highest trading multiples of the group in terms of EV / EBITDA and saw a majority of its first-quarter acquisition activity from strategic acquirers (including a mega deal), with a limited amount of PE involvement. This segment’s notable transactions include:

  • Altra Industrial Motion Corp.’s (NasdaqGS:AIMC) definitive agreement to acquire Jacobs Vehicle Systems, Inc., Kollmorgen Corporation, Portescap U.S. Inc., and Thomson Industries, Inc. from Fortive Corporation (NYSE:FTV) in a deal valued at approximately $3.0 billion – allowing AIMC expansion across the industrial technology spectrum, increased exposure to higher growth, higher margin categories, extension of global reach, and an enhanced financial profile as earnings growth is expected to generate substantial free cash flow
  • Applied Industrial Technologies (NYSE:AIT) announced it has entered into an agreement to acquire Ohio-based FCX Performance, Inc., a leading distributor of specialty process flow control products, for approximately $768 million – management expects the deal to be accretive in fiscal year 2019

FLOW & PROCESS CONTROL PUBLIC COMPARABLES2

Industrial Supply Flow Process Control Public Comparables

FLOW & PROCESS CONTROL PUBLIC SELECT M&A TRANSACTIONS

Industrial Supply Flow Process Control Select MA Transactions

Industrial Products

The industrial products segment produced solid transaction activity in the first quarter, second only to building and landscape products. A majority of the acquisitions in this segment came from larger strategics, pointing toward a theme of continued consolidation within the industry. Notable transactions include:

  • Stanley Black & Decker, Inc.’s (NYSE:SWK) acquisition of Nelson Fastener Systems for approximately $440 million in cash (the deal does not include Nelson’s automotive stud welding business) - SWK expects cost synergies as a result of the deal, as well as an enhanced fastening’s presence within the broader industrial market
  • HD Supply Holdings, Inc. (Nasdaq:HDS), one of the largest industrial distributors in North America, acquiring A.H. Harris Construction Supplies for approximately $380 million, enabling HDS to further strengthen its “White Cap” business unit across the eastern United States, deepen its product expertise, and increase product and service offerings to customers

INDUSTRIAL PRODUCTS PUBLIC COMPARABLES2

Industrial Supply Industrial Products Public Comparables

INDUSTRIAL PRODUCTS SELECT M&A TRANSACTIONS

Industrial Supply Industrial Products Select MA Transactions

Safety Products

The safety products segment saw activity from a number of private equity players, as well as a handful of strategics looking to complement existing operations through acquisition. Notable transactions within this segment include:

  • Securitas AB’s (OM:SECU B) acquisition of Automatic Alarm SAS in a deal (when converted to U.S. dollars) valued at approximately $53 million, strengthening its presence within electronic security and furthering its status as a market leader in France
  • Bridgepoint, an international private equity firm, announced its acquisition of Safety Technology Holdings from Golden Gate Capital – management expects to increase its global presence through Bridgepoint’s expansive network, particularly in Europe and China
  • DXP Enterprises, Inc. (Nasdaq:DXPE) acquiring Application Specialties, Inc., building on its strategy of providing a breadth of technical products and services and expanding its scale and access within the U.S. Pacific Northwest market

SAFETY PRODUCTS PUBLIC COMPARABLES2

Industrial Supply Safety Products Public Comparables

SAFETY PRODUCTS SELECT M&A TRANSACTIONS

Industrial Supply Safety Products Select MA Transactions


  1. Multiples above 20x are excluded from the mean/median calculation; data represents the overall median of all four sub-segment benchmarks presented in this report. Source: S&P Capital IQ
  2. Multiples above 20x are excluded from the mean/median calculation. Note: Median from public comp sets featured in report