The distribution industry plays a crucial role in global supply chains, connecting manufacturers with end consumers. Understanding how to value a distribution business is essential for business owners, investors, and M&A professionals. At The Funding Assembly, we specialize in facilitating transactions that preserve business legacies while maximizing value for sellers and buyers.

1. Common Valuation Methods

Valuing a distribution company involves several methodologies, each offering unique insights into a business’s worth.

Method

Description

Use Case

Relative Valuation

Compares the business to peers using multiples (e.g., EBITDA, Seller Discretionary Earnings, revenue). Simplifies benchmarking but may overlook unique attributes.

Ideal for mature businesses with comparable public/private sales data.

Intrinsic Valuation

Estimates value based on projected cash flows (DCF) or earnings (EBITDA models). Forward-looking but reliant on assumptions.

Suited for stable, cash-generating businesses with predictable growth.

Asset-Based Valuation

Calculates net worth of tangible assets (inventory, real estate) and intangibles (customer contracts, IP). Ignores growth potential.

Best for asset-heavy distributors or liquidation scenarios.

Industry-Specific Models

Applies sector-tailored metrics (e.g., inventory turnover, days sales outstanding). Reflects distribution-specific risks and margins.

Standard for M&A due to alignment with distributor economics.

2. Industry-Specific Valuation Multiples

Multiples vary by subsector, size, and market conditions.

EBITDA and SDE Multiples

Business Size

EBITDA Multiple

SDE Multiple

Applicable Segments

Small ($1–5M revenue)

4–6x

2–4x

Local/regional distributors, niche markets.

Mid-market ($5–50M)

6–8x

4–6x

Food service, medical, logistics.

Large ($50M+)

8–10x

N/A

Industrial, global import/export firms.

Revenue Multiples

Subsector

$1–5M Revenue

$5–10M Revenue

$10–50M Revenue

Food Service

3.1x

3.4x

3.6x

Medical & Healthcare

3.2x

3.6x

3.8x

Industrial

2.8x

3.1x

3.4x

Logistics

3.1x

3.6x

3.7x

3. Strategic Factors Influencing Valuations

Growth Potential

  • Recurring Revenue: Businesses with >70% recurring revenue (e.g., maintenance and repair operations) command premium valuations.
  • Geographic Reach: Companies with exclusive regional rights or global networks are highly attractive.

Operational Efficiency

  • Inventory Turnover: High turnover ratios (>8x annually) indicate strong demand and optimized inventory management.
  • Tech Integration: AI-driven logistics and automated inventory systems improve profit margins and increase valuation.

Market Position

  • Customer Diversification: Businesses with no single client representing more than 15% of revenue mitigate risk and attract buyers.
  • Exclusive Partnerships: Distributors with OEM contracts or preferred vendor status secure higher valuations.

Sustainability & Compliance

  • ESG Alignment: Sustainable logistics practices can increase valuations by 10–15%.
  • Regulatory Adherence: Strong compliance frameworks minimize risks and enhance buyer confidence.

4. Recent Trends Shaping Multiples (2023–2025)

  1. Post-Pandemic Recovery: EBITDA multiples rebounded to 3.1–3.8x revenue in 2024–2025 as supply chains stabilized.
  2. Reshoring Focus: Distributors with local supply chains receive a 20% valuation premium as companies de-risk global operations.
  3. ESG-Driven M&A: Investors favor distributors prioritizing sustainability, increasing demand for eco-friendly operations.
  4. Tech Adoption: AI and automation-driven businesses achieve 0.5–1.0x higher EBITDA multiples than traditional models.

Conclusion

The valuation of distribution businesses is driven by profitability, scalability, and operational resilience. Businesses achieving premium valuations demonstrate:

  • High recurring revenue and diversified customer bases.
  • Efficient supply chains enhanced by AI/automation.
  • Compliance with sustainability and regulatory standards.

As M&A activity accelerates in 2025, distributors aligning with these priorities will secure top-tier multiples. At The Funding Assembly, we guide business owners through every step of the transaction, ensuring they maximize value while preserving their business legacy.