ProSales: What is the current state of M&A activity in the construction industry as a whole?
Beare: It's still quite strong on both a dollar and volume basis. During the first half of 2005, we have seen a concentration on bigger deals, such as Whirlpool actively trying to acquire Maytag. The big difference between the first half of '05 and last year is that the dollar volume has been more concentrated in these multi-billion-dollar deals. The overall market for the first half of this year is up 17 percent in dollar terms; however, interestingly, the billion-dollar-plus deal segment is up 27 percent by volume and 47 percent by number.
ProSales: How does this compare to what's going on in the pro dealer space?
Beare: At the dealer level, the opposite trend is true. Large players are still looking to acquire small and mid-size companies; however, there is a subtle difference from prior acquisition activity. Historically, purchasers were interested in filling in their existing markets in order to gain scale and realize cost synergies. In today's environment, purchasers are more interested in acquiring other dealers that bring something more to the table in the sense of “value add.” This value-added component generally takes the form of manufacturing capabilities and/or installation services. Thus, the focus of acquisitions has shifted from a basic need to expand geographically to a desire to achieve higher margins and faster growth. While the goal of growing construction/ installation services is clearly on many acquirers' minds, acquisitive dealers are still buying traditional distribution companies to build their networks. From their perspective, the inclusion of value-added services simply makes these geographic candidates that much more desirable.
EDITOR'S NOTE: Look for Nick Beare in next month's Dispatch column, where he will offer additional insights into trends impacting M&A activity, including The Home Depot's newest push into the pro arena.
