Over the past ten years, the wholesale and distribution sector has experienced rapid expansion, bolstered by advancements in internet business and a worldwide surge in e-commerce. The pandemic acted as a catalyst for distributors and wholesalers, further speeding up the transition to online operations. Because they give producers access to a large market, wholesale and distribution companies are vital to the economy. BB Capital, the top private market M&A advisory firm in Saudi Arabia, is aware that selling a company is a significant choice. A committed business owner aims to sell their company to a qualified buyer who can carry on the company’s legacy in addition to maximizing the amount of money they can get from the sale. BB Capital brings a wealth of deal-negotiating experience to the table, having worked on more than 100 valuation and M&A consulting engagements in the wholesale and distribution industry. Our knowledgeable advisory staff will help your company through the whole sell-side M&A process.

Understanding certain crucial elements unique to the Wholesale & Distribution industry that could affect the possibility of a possible sale is crucial for entrepreneurs and business owners considering a possible sale. These elements influence how appealing a company is to possible investors and buyers.

Exclusive Contracts: Having multi-year service agreements and exclusive contracts with important suppliers and respectable customers can significantly increase a wholesale and distribution company’s chances of making a sale. In addition to providing an economic moat and a barrier against competition, exclusive territory and contracts enable a business to take advantage of larger margins. Additionally, contracts and agreements lessen reliance on the owner’s current ties with important stakeholders and help buyers predict the company’s future cash flows.

Supply Chain: A wholesale and distribution company’s network of suppliers and capacity to acquire raw materials for its clients are the key factors affecting its performance. Businesses that have made investments in supply chain optimization are better equipped to reduce delivery costs and fulfill orders more quickly. In general, businesses with well-planned supply chains free of bottlenecks or sole source suppliers are viewed as less risky and more appealing to prospective customers.

Location and Facility: Having an easily accessible, strategic location is crucial for a distribution and warehousing organization. A company’s profitability can be increased by having a location close to suppliers and consumers, which can drastically cut down on delivery costs and timeframes. It’s also critical to have a facility with expansion potential. A distribution company’s valuation will suffer if it needs to make large capital expenditures in order to expand.

Inventory: In order to guarantee a high fulfillment rate, distribution and wholesale businesses frequently keep a lot of inventory on hand. However, this can present two difficulties at the point of sale. First, depending on an earnings multiple, the book value of inventory may exceed the enterprise value of the company. If some of this inventory is out-of-date and cannot be sold to a buyer, the situation becomes much more dire. Second, having a lot of inventory means paying more for warehousing and storage. An effective supply chain and lean inventory management system can increase profitability by reducing facility overhead and enabling business scalability.

Whether it’s a sale or a valuation, our team can offer resources and experience that are only available at larger companies, together with the individualized attention of our M&A Advisory team. Reach out to one of our advisors by contacting us right now.