The Big Get Bigger With Industry Consolidation

Large distributors helped by M&A activity, but divided in their feelings about it.

Consolidation has been occurring at a scorching pace in the gases and welding industry. Just today there were five acquisitions announced in the July 23 GAWDA Connection newsletter. Welding & Gases Today reached out to GAWDA members to find out what effect this flurry of acquisitions is having on their business. Last week, we heard from small (under $10M in sales) and medium-sized (under $25M) distributors, two thirds of whom expect consolidation to help their bottom line.

Impact of industry consolidation on sales among large distributorsLike the small and mid-sized distributors surveyed, large distributors had their share to say about industry consolidation. Defined as companies with sales of at least $25 million, large distributors include those companies who are most often on the buying end of acquisitions.

When about the impact of industry consolidation on their business, large distributors overwhelmingly say the trend will help their sales. Says one distributor, “With each consolidation in our market areas, our business tends to grow by picking up accounts or portions of accounts.”

In all, 88 percent of large distributors expect a boost in business from consolidation; the remaining 12 percent expect consolidation to hurt their sales. Among those anticipating a negative impact, one large distributor says, “Either you sell and make a ton of money, or the competition will buy your larger customers one at a time and drive the value of your business down.”

Sentiment about industry consolidation among large distributorsDespite the lopsided numbers that reflect an expected increase in sales due to consolidation, large distributors were not so quick to call consolidation a good thing. When asked “What are your feelings about industry consolidation?” distributors were evenly divided between like and dislike for consolidation at 38 percent each. 24 percent of respondents were indifferent toward consolidation.

Says one large respondent, “In the marketplace, bigger does not always equate to better.” And another: “Consolidation in the industry is not a good trend unless it is my company doing the consolidating.”

Meanwhile, another distributor sees competitors’ acquisitions as a window of opportunity. “With consolidation, it is never seamless for the customers involved. This creates opportunities for other distributors.”

Examining Industry Consolidation

Among small and medium-sized distributors, pricing was a major topic of discussion surrounding the conversation on consolidation. One small distributor noted that it is becoming increasingly difficult for smaller companies to negotiate pricing. A large distributor had a different view on pricing. “I believe acquiring companies tend to be more rational about pricing than independents,” says one respondent.

On the whole, distributors large and small had mixed feelings about industry consolidation. Industry suppliers, on the other hand, were very decisive in their feelings toward distributor acquisition activity. In the final installment of Welding & Gases Today’s overview of industry consolidation, we’ll look at the supplier point of view, along with a macro view of the impact M&A activity is having on the industry.

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Gases and Welding Distributors Association