On the surface, the business of distributing industrial and hydraulic hose as well as other rubber goods doesn't seem that exciting. But it's obviously caught the fancy of many, as merger and acquisition activity has been through the roof for the past year plus after being eerily quiet through the early phases of the coronavirus pandemic.

There are sellers that are looking to transition to the next phase of their business, some looking to cash out and retire, while others want to stay but don't have the financial wherewithal to properly fund the growth they had envisioned.

On the flip side, there are buyers who see hose and other related distributor firms as solid companies that are often serving critical markets, which the buyers see as providing very real opportunities for both top and bottom line growth.

And it's clear that there are ample potential buyers in the market looking to start or build a platform or portfolio, but it's still imperative that sellers know what they want to accomplish by divesting and that they pick the right partner to help them achieve that goal.

Platte River Equity is a Denver-based private equity firm that invests in established lower middle market operating companies within targeted industrial sectors. And one of those market segments is industrial rubber distribution, as it invested first in 2022 in Belt Power, and then late last year in bringing together Tipco Technologies Inc. and HydraTech Industrial Solutions.

Managing Director Peter Calamari and Principal Mike Reilly see great opportunity in the future of the platforms. "Part of it is the diversity. It's infrastructure, transportation, government, manufacturing, and energy and gas. It's a little bit of everything", Calamari told Rubber News. "So you have great diversity, you have tons of customers. You're not at risk of losing any one business".

"A big part of it is that it's MRO driven. A vast majority of these businesses are driven by mandatory replacement. If a hose breaks, you have to fix it. ... And then the third is it's really value-add. We don't like distributors where it's just breaking bulk. We want a distributor that's touching the product, that's really ingrained with their customers, providing those kind of value added services".

Jeff Crane, CEO of Pittsburgh based LGG Industrial (Eriks North America until a recent rebranding) said there are a number of reasons for the recent pickup of M&A in the rubber distribution space. It's still a relatively fragmented market with a lot of small and regional players, along with aging ownership and family businesses where a second or third generation wants to transition their business to the right owners.

M&A activity also follows economic cycles, Crane said. Just as there was a pause during the Great Recession in 2008-10, the pandemic caused a similar slowdown. But as that pain disappears in the rear view mirror and businesses recover, they are thinking more seriously about selling.

"And you've also got buyers that are now getting their toes back in because they're a little bit more comfortable with the assets that they're looking to buy and the value that they're getting for them", Crane said.

LGG Industrial itself was purchased by private equity in 2022, and since then has resumed an active role in the M&A scene, one that had been part of the company's history until recent years.

"You know fundamentally it's a way for us to create value in our business. It helps us expand our geographic reach. It helps us expand our product and service offering," Crane said. And with the backing of new owners LKCM Headwater Investments, LGG is looking to add on at the forefront of its growth strategy. "They're very well aware of the opportunities that the industrial distribution space affords", he said. "They've been quite acquisitive themselves and love the idea of doing add on acquisitions".

If a company is looking to sell and has a strong customer base, good margins and a stable track record, there will be a number of potential buyers. Conversely, sellers need to be careful about picking the right partner. Often these owners have spent their entire lives building these businesses, so it's, 'How are you going to treat my legacy? And that legacy is comprised of employees they've been working with, and building the business with their customers and their suppliers.

Even though you know in some cases they're sticking with us and staying around for the next chapter, in other cases, they're retiring and selling the business. They're focused on making sure that their employees and other stakeholders are treated well. And while as a private equity firm they will look to get liquidity on their investment at some point, they get the best return on investments when they go in with a long term mindset.