Before we dive into this week’s topic,
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This article was supported by RTC’s Research Analyst Mark Scavo. Interested in learning how to think like a PE investor? Check out RTC’s research internship.
State of Play
Sometimes you come across a market where small players trade much differently than some of the largest players in the market.
For example, a small industrial distributor with $2 million of EBITDA probably sells for <10x. But Fastenal, a large public industrial distributor company ostensibly doing the same thing at scale (of course they are doing something different, more on that shortly), trades at ~30x.
Nobody is paying a premium for industrial bolts at scale. But investors would pay a premium if you have a fundamentally different business model (i.e., Fastenal sells supply chain services vs. just distributing bolts), plus you can buy those smaller businesses for cheap and infuse that business model into those targets.
In today’s case study, we explore AFC Industries, which started out as a fastener distributor with embedded services at its heart, then went on to roll up dozens of regional distributors over the last 14 years across 3 different PE ownership.
Let's dive in.