Distribution markets remain fragmented. The top five companies hold about 18 percent of market share, and the rest is still made up mostly of mom and pops, leaving plenty of opportunities for M&A-driven growth.

Digital disruption is fueling today's M&A fire. During the MDM-IRCG Distribution M&A Executive Workshop in October, my fellow speakers said there is more intense disruption in the market right now than they’ve seen in 20 years, and I tend to agree.

Baby boomers are aging out and millennials are moving into decision-making positions, creating a shift away from in-person selling toward digital shopping and buying. As many of you know, Forrester has predicted that the U.S. will lose 25 percent of all field sales reps by 2020 as they are replaced with online ordering, inside sales reps and other specialized roles.

Disruption like this causes panic, and an owner’s interest in selling their business increases when they feel threatened. Consider Amazon Business’ growing scale in B2B, with $1 billion in revenue in 2016. Many distributors have already joined the Amazon Business sellers’ pool, as have their suppliers.

Distributors are losing business in high-profit and easy-to-sell products to Amazon, and many haven’t noticed. They will continue to lose more as suppliers embrace Amazon to please their shareholders, similar to when they embraced home centers in the 1990s to regain access to the construction market.

Many distributors are responding to this disruption like sheep being chased by a lion, and they are responding in one of three ways:

• The sheep running fastest are the platform companies.
• The fast-follower sheep are add-on acquisitions.
• The slowest sheep will be the asset purchases.

Distributors that don’t have the skill or resources to overcome this market pressure will be most likely to sell. The best strategy – if you have five more good years and are willing to invest a bunch of money – is to become a platform company (i.e., the acquirer) by investing in operating scale, role specialization and performance-management processes, as well as developing price advantages from strategic pricing, scale with suppliers and leveraging competitive intensity.

Mike Marks is managing partner of Indian River Consulting Group and specializes in helping distributors and manufacturers accurately diagnose problems and identify risk-bound alternatives, so they can take their next steps confidently. Call IRCG at 321-956-8617 or visit ircg.com.