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better to buy because you get traction in
the marketplace and a brand name,” he
says. “When we bought product lines, we
bought expertise.”
On the distributor side, it is also
important to consider demographics. In the
next 10 years, the age of distributor owners
will be a huge driver toward aggregating
within networks, says Fandos, whose dis-
tributorship was acquired by the global
promotional merchandise company Brand
Addition in January. “You have this huge
bubble of owners over 50 who are thinking,
‘What are my options? What is my exit
strategy?’”
Michael McKeldon Woody, CAS, pres-
ident and founder of consulting firm
International Marketing Advantages, Inc.,
in Cranston, Rhode Island, and a former
supplier company executive, attributes the
current acquisition activity primarily to the
numerous small suppliers who don’t have
sufficient buying power in China, nor the
assets they need to deal with product safety
and compliance—and the stress it puts on
their bottom line. Plus, he says, margins in
general are shrinking in this industry and
suppliers must be operationally excellent to
efficiently process thousands of small, cus-
tomized orders. “Larger suppliers, because
they receive a critical mass of orders, can
afford to invest in the systems and process-
es needed to deal with that order flow,” he
explains. “This is a challenge for many
smaller suppliers, so some are more open to
selling at this point.”
TAKING A CLOSER LOOK
The aggregation of companies poten-
tially leading to consolidation is not unique
to the promotional products industry—it is
prevalent across a number of industries
from technology to manufacturing to phar-
maceuticals. In the tech space, in particular,
Microsoft, Google and Facebook have been
on an acquisition spree in recent years.
When Facebook acquired WhatsApp (a
text messaging service) in 2014, it did so in
order to acquire a new service that it did
not currently possess. Graham explains that
many of the acquisitions he’s observed in
the promotional products industry have a
different goal than Facebook’s strategy. For
example, he says when apparel supplier
alphabroder acquired Bodek and Rhodes in
December 2015, he saw it as a way for the
company to increase scale, drive down costs
and be in a position to better negotiate with
its suppliers. Graham calls it a very smart
business strategy but different from acquir-
ing a company to expand into a different
line of business (as Facebook did to expand
beyond social networking into messaging).
Jeff Schmitt, MAS, account executive
at mid-sized distributor Cedric Spring &
Associates in St. Charles, Illinois, predicts
that distributor acquisitions are going to
heat up even more over the next few years.
The reason? To better service their clients.
He cites that many small distributors don’t
have sufficient resources, especially for
things like servicing global clients. But by
pooling resources and capital, they can take
advantage of the assets and experience of
larger distributors. “Our clients are getting
more and more global,” says Schmitt,
whose company recently purchased the
assets of two small distributorships and
recently began servicing the Germany-
based parent company of a longtime U.S.-
based client. “The reason I was able to pick
up those businesses is because of our
resources.”
Beacon’s Haley says what is happening
to the promotional products industry is
taking place in a lot of industries. “I think
we are in a constant evolution as businesses
shake out,” he observes. “We continue to be
an attractive business both from a supplier
and distributor side.”
“For a
long time
now it
has been
obvious
that the
industry is
mature.
As an
industry
matures,
it doesn’t
mean that
individual
companies
cannot
grow,
because
they can.”