Motivations for M&A Add-ons in the Fasteners Industry
Based on analysis of nearly 150 publicly available transaction announcements, the motivations for fastener add-on acquisitions typically follow a few common themes. These strategies are not mutually exclusive (and several announcements noted more than one motivation for the transaction) and in some cases are interrelated. With that said, the most common reasons sited are as follows:
Product expansion was the most frequently referenced reason for add-on acquisitions. For distributors, a broader product suite enhances their role and reach within the supply chain. For manufacturers, expanded manufacturing capabilities allows them to quote on more comprehensive solutions. As customers seek to streamline vendor lists, companies able to offer more become better positioned to win market share.
Geographic expansion tends to favor distributors extending their products and services to new markets. Such expansion often delivers increased profitability as distributors gain fixed-cost leverage. Manufacturers can also deploy this strategy by establishing manufacturing facilities near customer sites to foster new partnerships.
Diversification tends to benefit all companies as it creates more opportunity and scale while theoretically decreasing volatility. All else being equal, highly diversified businesses (products, customers, end markets, suppliers) often command higher valuations relative to their concentrated counterparts.
Product overlay becomes a fruitful strategy once acquirers reach a critical mass. Rather than seeking value enhancement from the add-on itself, the acquirer’s value proposition is applied to the target – often in the form of a broader product set. This symbiotic approach allows the acquired target’s customers to receive more value from the relationship, which tends to accelerate revenue and profitability growth.
Other commonly referenced motivations for add-ons include a pursuit of additional capacity, growth potential and scale.
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