Why mergers and acquisitions are surging in wholesale & distribution

The U.S. wholesale distribution sector is experiencing a rapid acceleration in mergers & acquisitions (M&A) activity. From HVAC buying groups like Johnstone Supply acquiring independents, to family-owned distributors selling due to succession challenges, consolidation is reshaping the distribution landscape. One recent example is Hein Electric Supply's acquisition of Laser Electric Supply highlights how strategic buyers are capitalizing on opportunities across the middle market.

Behind this surge in distribution M&A lies a convergence of economic, generational and technological pressures. And as companies grow through acquisition, many are turning to BI and FP&A platforms like Phocas to connect operational data from multiple ERPs, drive financial performance and report and budget across all the entities.

Why are we seeing more mergers?

Many distribution companies remain family-owned and operated. As second and third generation family members assess their future, many are opting out of the risks associated with running a wholesale distribution business. With rising operational complexity, evolving customer expectations and the need for updating technology handing over the reins is less appealing for some families.

This generational turnover is creating fertile ground for acquirers, especially strategic buyers and private equity firms, who can bring in professional management and scale efficiencies.

The distribution sector has become a hotbed for private equity (PE) firms. With steady cash flows and essential roles in the supply chain, distributors represent relatively low-risk investments.

These financial sponsors often use a buy-and-build strategy which includes acquiring multiple smaller players to form regional or national powerhouses. As interest rates stabilize and valuation multiples remain competitive, verticals can expect continued growth in m&a transactions driven by private equity.

Industry stalwarts are also strategic buyers and are highly active. For example, Hein Electric Supply, a major player in industrial distribution, recently acquired Laser Electric Supply to enhance geographic coverage and its product offering. This move reflects a broader growth strategy where distributors seek to expand capabilities and customer bases quickly through acquisitions.

Vertical integration or capturing a larger share of an existing market or entering a new market by introducing new products or services (e.g. automotive, healthcare and foodservice) and improved supplier terms all motivate strategic buyers to pursue M&A.

Challenges with distribution M&A

While M&A can offer rapid growth, it also introduces complexity.

Data fragmentation presents a significant challenge in distribution M&A, as acquired companies often operate on different ERP, CRM and accounting systems making integration complex. Supply chain disruptions can arise when consolidating suppliers, SKUs and logistics workflows. It requires meticulous planning to avoid operational hiccups. Merging teams and retaining key talent is another hurdle, as addressing differences in people and company culture demands careful strategic planning. Achieving financial visibility becomes increasingly difficult after the merger, as consolidated reporting across multiple entities can be hard to establish without the right tools and processes.

That’s where BI and FP&A platforms step in

Modern BI and FP&A platforms like Phocas can ingest, transform and connect data from multiple systems like ERPs, inventory management, CRM, ecommerce and more across the acquired entities. This provides a single source of truth for operational and financial performance.

In the pre-deal phase, m&a advisory and investment banking teams rely on data to validate assumptions. Accurate, real-time insights improve due diligence from evaluating pricing strategy to uncovering hidden cost drivers.

With real-time dashboards, new owners can track key metrics like sales by location, gross margin by product category, inventory turnover and customer profitability. Automation plays a critical role in minimizing manual consolidation.

Post-acquisition, FP&A tools enable swift onboarding of the acquired company’s financials into corporate models. Teams can run what-if scenarios, measure deal ROI and identify early wins.

Bridging tech and culture gaps

East Coast building supplier, Trade Supply Group (TSG) uses Phocas to bridge data, technology and culture gaps before, during and after acquisition of new companies.

“On the surface, if the business financials look good, it offers similar products, is in the same vertical and geographic area, and seems to be the right size, then we get granular with our data and financial analysis. And this is where Phocas becomes key to our integration strategy, allowing us to pull financial and operations data from the company’s ERP system directly into Phocas for a deep dive into the numbers.”

In most cases, the technology systems and solutions used by the companies TSG is acquiring do not align with TSG’s. At any given time, TSG is doing due diligence on multiple companies, many with different ERP systems. Fortunately, no one needs to understand the other ERP system because TSG captures the operations data in Phocas and is already making decisions based on the information.

But success isn’t just about finding the right deal—it’s about integration. That’s why many companies, like Trade Supply Group also recommend investing in BI and FP&A tools as early as possible to ensure continuity and accelerate returns.

Achieving a new economy of scale

The recent acquisition of Laser Electric Supply by Hein Electric Supply is a textbook example of the sector’s consolidation trend. Hein, a Milwaukee-based leader in electrical supplies, leveraged the deal to expand its footprint and enhance customer service.

What will drive value from this merger isn’t just the acquisition but how effectively the combined entity manages inventory, sales performance and back-office integration. By utilizing Phocas BI and FP&A, Hein can effectively achieve synergies and monitor long-term performance.

As the U.S. distribution industry continues to consolidate, those that leverage data to drive decision-making will be control. Whether you're a PE-backed wholesale distribution platform, a family-owned firm exploring exit options or a strategic buyer expanding into specialty distribution verticals, the ability to integrate and analyze data specific to the wholesale and distribution sectors is crucial.