2024 Recap and 2025 Outlook

2024 Recap

In 2024, M&A activity across the specialty distribution sector surpassed the total annual volume recorded in 2023 and 2022. The increase in completed deals was driven by several key factors, including strong public equity market performance, easing inflation, an improved financing environment, and a substantial amount of private equity capital under significant deployment pressure.

The distribution sector remains an attractive arena for M&A. Both strategic and financial buyers have actively targeted acquisitions across the distribution sector due to the size and expected growth of the markets served, long-term economic resiliency of the distribution business model, target rich acquisition environment in fragmented sectors (geographic and end market), favorable long-term growth trends and cash flow dynamics. On a combined basis, these factors have influenced how buyers view and approach M&A across the distribution sector as buyers can leverage these characteristics to drive substantial growth and to improve the financial and operational performance of their investments.

In 2024, the majority of M&A transactions across the specialty distribution sector focused on smaller “tuck-in” deals, as buyers generally avoided larger, potentially riskier transactions due to uncertain market and geopolitical conditions. These smaller acquisitions often aimed to diversify existing product and service portfolios, expand geographic and end-market presence, and optimize supply chain networks. However, while the bulk of M&A activity focused on smaller deals, there were a number of significant and high-profile distribution transactions, including:

– Border States acquisition of Dominion Electric

– Builders FirstSource Acquisition of Alpine Lumber

– Home Depot’s acquisition of SRS Distribution

– Veritiv’s acquisition of Orora Packaging

2025 M&A Outlook: Reasons for Optimism

M&A activity is largely driven by market confidence, and while the economic outlook for the U.S. remains uncertain — complicated by a new presidential administration, the Federal Reserve’s ongoing efforts to manage inflation, tariffs, and various other international geopolitical challenges—several strong demand drivers suggest the potential for substantial M&A activity in 2025.

RETURN OF ACTIVE PRIVATE EQUITY DEALMAKING | There is still an abundance of debt and equity capital earmarked for M&A that needs to be deployed. We expect that the potential combination of steady or declining interest rates and the significant levels of available “dry powder” for M&A could spur a flurry of activity from the private equity universe as the asset class seeks to quickly deploy record levels of committed capital and also exit existing portfolio company investments that are now reaching the higher end of preferred investment hold periods.

PUBLICLY-TRADED ENTITIES UTILIZING M&A AS A TOOL TO DRIVE GROWTH | Given the overall performance of the public markets, large strategic buyers with substantial cash balances have been given the mandate to deploy significant capital towards value-added M&A opportunities that offer the potential to drive growth and boost earnings. Additionally, we expect many publicly-traded businesses to continue the strategic evaluation of their existing operations and portfolios to identify non-core assets and selectively divest businesses to optimize financial and operational performance to maximize shareholder value.

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