M&A Influx Hits Home For Small Distributors

Small- and medium-sized GAWDA distributors weigh in on the effects of consolidation.

As consolidation heats up in the gases and welding industry, it seems that so too do the feelings of GAWDA members. Welding & Gases Today surveyed GAWDA members to find out how mergers and acquisitions are affecting their business, and distributors and suppliers responded to the call with passion, sharing their feelings about the changing landscape of the industry.

Sentiment about industry consolidation among small- to mid-sized distributorsSmall- and medium-sized businesses were particularly vocal about the effects of consolidation. For the purposes of this survey, Welding & Gases Today defines a small business as having sales of less than $10 million. Medium is defined as less than $25 million in sales.

GAWDA members were asked, “What are your feelings about industry consolidation?” Among small- and medium-sized businesses, one third of respondents say they don’t like it. Says one industry member, “We are starting to see the effects of consolidation, as it is getting harder to negotiate for pricing on certain products or gases as a smaller player.”

Meanwhile, 45% of small and medium respondents say that they like the current slew of industry consolidation. “Although it is a bit disconcerting to watch all of the independent distributors get eaten up by the giants, it also gives us hope and opportunity in our marketplace,” says one respondent. “No matter what the majors do, there will always be a need for the smaller distributor.”

22% are indifferent about the pickup in M&A activity.

Effect of industry consolidation on sales among small- to mid-sized distributorsHowever, when asked, “What impact do you expect industry consolidation to have on your business?” there was no sign of indifference. Across the board, every small- and medium-sized respondent expects their sales to be impacted by consolidation.

67% are optimistic that industry consolidation will provide a boost in sales. Still, at least one distributor says it’s a double-edged sword. “As the national chains purchase local distributors, customers accustomed to personalized service gravitate to our company. Our issue is that the buying power of the national companies makes it difficult for us to compete on non-gas products.”

“Having to deal with national contracts doesn’t help the local distributor,” says one distributor among the 33% who expect consolidation to hurt their sales.

Examining Industry Consolidation

Another respondent says buying power is a problem. “Consolidation is creating a limited market for us to buy some of our core gas products at competitive prices. Certain packaged gases are only available from the majors, which exposes your cost for those products to those companies that are our biggest competitors. Helium and acetylene are two examples that come to mind.”

When it comes to M&A activity, large distributors ($25+ million) are not immune to the effects of consolidation. In Part II of our series on industry consolidation, Welding & Gases Today looks at how large distributors are being impacted by consolidation and find out why one large distributor says, “In the marketplace, bigger does not always equate to better.”

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Gases and Welding Distributors Association