Suppliers Express Concerns In The Face Of Acquisitions

Is industry consolidation affecting service levels among gases and welding distributors?

Over the past few weeks, Welding & Gases Today has looked at the state of industry consolidation in the eyes of GAWDA distributors both large and small. While distributors did not all agree on whether the current trend is good or bad for the future of the industry, the one thing everyone can agree on is that the market has been very active with M&A transactions. Through the first seven months of the year, the GAWDA Connection and Welding & Gases Today have reported nearly 30 industry mergers and acquisitions.

Sentiment about industry consolidation, distributors vs. suppliersSo what exactly did distributors have to say about industry consolidation? All told, 73 percent of distributors expect that it will help their sales moving forward, while the other 27% expect a decrease in sales due to consolidation. As to whether distributors actually like the current trend, those numbers were less one-sided, with 42 percent giving the thumbs up, and only 35 percent saying they dislike consolidation. The remaining 23 percent were indifferent.

But while distributors generally expect positive things to stem from industry consolidation, this is only one side of the story. GAWDA’s supplier members had their say, too, and the results were very different.

Manufacturers and wholesalers largely expressed a strong distaste for the tide of acquisitions. Consolidation was met with only 12 percent approval from supplier members, while the majority, 88 percent, say they do not like consolidation.

One reason for suppliers’ strong feelings was the negative impact of consolidation on business. Says one supplier, “A monopolized culture makes it more difficult to negotiate better deals.” Similar feelings were reflected in the comments of another supplier, who says that acquisition of distributors by national companies takes away local buying decisions. “While some suppliers maintain those accounts, just on a larger scale, others are removed from consideration due to national buying arrangements.”

Effect of consolidation on sales, distributors vs. suppliersThese comments reflect a general concern that industry consolidation will hurt suppliers’ sales, a concern held by 63 percent of respondents. Meanwhile 25 percent anticipate a boost in sales, while 12 percent expect industry consolidation to have no impact on sales.

In addition to the effect on sales, several suppliers showed some trepidation about the effect consolidation has on end-users and the gases and welding industry as a whole. “With consolidation come larger distributors with less well trained employees,” says one supplier. “Consequently, the end-user is the one that suffers the most.” Adds another supplier, “The reduction of independent distributors diminishes the overall service levels in the welding industry.”

Along with service, one supplier feels that product selection is sacrificed as competition declines among distributors. “Consolidating market power in fewer channels limits the breadth of products and suppliers’ access to these markets.” With fewer products available to end-users, the question is raised whether manufacturers have any less motivation to invest in R&D. If so, this could prove to be a major setback for the industry.

Distributors and suppliers enjoy a symbiotic relationship, but it’s clear that what may help one side is not always best for the other. While the short term effect—whether consolidation helps or hurts GAWDA members’ sales—is fairly transparent, the long-term impact of this latest trend in industry acquisitions is yet to be seen.

Effect of consolidation on sales, all responses Sentiment about industry consolidation, all responses

In case you missed it, revisit the reactions of small/medium distributors here and see what GAWDA’s large distributors are saying about industry consolidation here. Agree or disagree with what members are saying? Share your thoughts by leaving a comment.

Examining Industry Consolidation

Gases and Welding Distributors Association