Flow Control Distribution: Overflowing With Opportunity

Positive tailwinds are creating rising investor interest and M&A opportunity in the flow control segment of specialty distribution. It’s a fragmented landscape with substantial white space for growth, as illustrated by the success and recent acquisition of Harris Williams client Midland Industries. 

Here, senior professionals from our Industrials Group and Business Services Group share what’s appealing about flow control distribution, how Midland Industries exemplifies investor opportunity, and what guidance they offer for investors interested in the space.  

Rising Demand for Flow Control Products

Several trends are cultivating a prevailing view that the U.S. is in the early stages of a manufacturing super cycle, which will underpin strong and steady demand for flow control products. Manufacturing re-shoring, infrastructure aging, the energy transition, and technology adoption are all driving higher demand for these components. 

John Arendale, an Industrials Group managing director, highlights that while the recent period of supply chain disruption was challenging, it crystallized the value proposition of distributors across sectors. “It also spurred an acceleration in the resurgence of on- and near-shore manufacturing,” he says. “New facilities will need to be built, and contractors will rely on specialty distributors to supply the necessary materials for these builds.” 

In addition to new facility development, the need to maintain and upgrade a substantial amount of aging commercial infrastructure is generating sustained demand for replacement products. Maintenance is often nondeferrable, as working parts may be critical to keeping a facility in production. At the same time, a large energy transition is underway as companies move from oil and gas to non-carbon-based fuels, such as LNG or hydrogen. This has created strong demand for upgraded flow control systems capable of handling and monitoring these more complex and sensitive fuel alternatives. Furthermore, as companies push to upgrade technologically and take advantage of digitization and the Internet of Things, they are concurrently upgrading their general industrial infrastructure. 

“All these factors contribute to a robust growth forecast for companies that participate in the supply of goods for industrial infrastructure development and maintenance across the U.S., including flow control,” explains Graham Gillam, a managing director in the Business Services Group.  

Brandt Carr, an Industrials Group director, notes that the demand profile of flow control products also appeals to investors. “When transferring fluids, gases, materials, or current, functionality and quality are paramount, so these are not commoditized products,” he says. “They often support mission-critical applications where there’s a high cost of failure, yet they are relatively low priced and purchased routinely with demand inelasticity.” 

“Flow control is ubiquitous,” adds Arendale. “There are so many different areas of need that a company can sell its product in many end markets and diversify. The flow control industry offers a resilient business model with the opportunity to participate in a broad industrial landscape.”  

Gillam also highlights that it's a very fragmented market, characterized primarily by small or regional distributors. “There’s a significant opportunity to expand geographically while taking on additional product categories to capture a greater share of customer purchases.” 

Midland Industries: Staking a Differentiated Position

Midland Industries is a leading specialty distributor of fittings, valves, hoses, and related products. The company serves distributors, original equipment manufacturers (OEMs), and retail customers within the large and growing North American pipes, valves, and fittings sector of the flow control industry. 

Midland offers several unique strengths that differentiate the company in its sector. For example, large OEMs and distributors are seeking simplification in their supply base. Midland is a platform of scale with a national footprint, able to serve all customer locations. Meanwhile, its breadth of products across essential flow control product categories enables customers to come to one supplier for multiple needs. 

Midland has also invested heavily in the implementation of advanced technology, both for better back-office, data-enabled decision making and higher-value, customer-facing experiences. Arendale believes that Midland’s tech enablement is a significant advantage, particularly in an industry composed of many smaller businesses with less tech sophistication. “The company’s e-commerce portal and mobile app are game changing for how customers interact with their suppliers in this industry,” he says. “It's a newer concept in industrial distribution, and Midland’s leading the way.” 

Carr also notes that Midland has an engrained culture of putting the customer first, and its tech-driven customer platform is a perfect example. “Midland’s people will go above and beyond to make customers’ lives easier, streamline their experience, and ensure on-time delivery,” he says. “Midland simply excels in service. It reliably gets products to the customer when they’re needed, and it is easy to do business with.” 

Service Quality and Scalability Top Investor Considerations

Many indicators signal that the flow control industry is at the start of a strong long-term demand cycle, buoyed by the manufacturing industry. The mission-critical nature of flow control products makes service quality and reliability a defining characteristic of leading distributors. Those companies that have invested in technology have a service advantage, as such tools make them easier and more efficient to work with while ensuring that products are where they need to be on time.  

“Harris Williams has a long heritage of working with companies in the flow control industry,” says Arendale. “It’s an industry ripe for investment with tremendous opportunity for growth and professionalization. Companies that can achieve scale hold an advantage in serving national accounts and enhancing margins through better purchasing power. Midland is a prime example of the industry’s investment opportunity, establishing the blueprint for others to follow.” 

To discuss M&A opportunities across flow control or specialty distribution more broadly, please contact our senior professionals.