Distributor Tech Investments in Q1 2023
Investments from Ferguson, McKesson and others...
Hello and welcome to this week’s edition of Distribution Technology!
Last week we covered two key areas of investment around B2B commerce, payments/financing capabilities and logistics. This week, we’ve gathered the data to take a look back at tech investments made by B2B distributors during Q1. This year is shaping up to be an exciting time for the tech industry, and it's great to see distributors playing a key role in fueling growth and innovation.
In this article, we'll take a macro look at the CVC investment landscape and highlight the three different tech investments made by B2B distributors during the first quarter of 2023.
At the bottom of this edition, we have also dug up Q1 2023 activity from a corporate venture fund we’ve identified as one of the leading threats to B2B Distributors (See where this same CVC deployed capital late last year in our look at Distributor's tech spending in H2 2022).
So, without further ado, let's dive in and explore the latest investments from B2B distributors in the tech space!
Every type of investing is down EXCEPT CVCs!
We previously noted that corporate venture capital was the only investor class to increase activity YoY from 2021 to 2022. This trend has continued into Q1 of 2023 with CVCs setting a record 27.4% share of deal count, up from 25.9% in 2022. 2023 is the year of the strategic and we’re not the only ones who think so as PitchBook predicts that 2023 will offer lower entry points for CVC investors:
We would expect valuation figures to continue their descent in the new year, which would theoretically lower the “entry price” for active corporate investors
and acquirers. This is especially advantageous if a corporate acquirer/investor
has had to pass on a particular deal in recent years due to an expensive price tag; the ability to revisit these opportunities at a lower cost, and with potentially more leverage over deal terms, is a huge bonus. In any market downturn, there are discontinuities—situations in which solid, fundamental enterprises are dragged down by the dwindling performance of the overall market and/or by weaker businesses in their industry/sector.
- Vincent Harrison, M&A and CVC in an Economic
This data indicates a great opportunity for Distributors to make bold and innovative plays, including revisiting previous deals that may have had an inflated price tag during the manic tech market of the past few years. We track investment and M&A activity by billion-dollar distributors in the chart below. The large majority of transactions are still traditional (acquiring other distributors, service providers, etc.) and not tech-forward. While distributor tech investment activity remains low in Q1, we wouldn’t be surprised to see an uptick as the landscape becomes more palatable to distribution - which is infamous for liking a good deal!
Let’s look at the 3 tech deals by distributors as well as a threat to distribution you should know about below:
Q1 2023 Distributor Tech Investments
In a February 2023 acqui-hire deal, healthcare giant McKesson acquired Glide Health for $3mm. Glide Health, founded in 2019, is a health tech company that offers a cross-functional revenue intelligence software for healthcare providers. Its revenue intelligence product is designed to bring cutting-edge intelligence to care settings, making it easier for providers to reduce cash collection cycles through intelligent denials management and automate their operational work.
By acquiring Glide Health, McKesson has adds an experienced team to develop an exciting, but nascent tool. Acqui-hires are a type of transaction that we expect to see more of.
In a larger transaction, aviation services and parts provider AAR has acquired Trax USA for $140mm. Trax, founded in 1997, is a leading developer of airline maintenance software that offers comprehensive solutions for all aspects of aircraft management. Its products are designed to streamline operations with features such as digital signatures, paperless manuals, biometric security, off-line capability for mobile apps, and web-based solutions.
With this March 2023 acquisition of Trax, AAR is buying a key piece of software used by a lot of existing and prospective customers. AAR will now have greater lock-in with these customers and be able to sell more products and services to the customers, expanding margins and share of wallet.
Most Recent Financing: The company raised $4.05 million of venture funding with participation from Ferguson Ventures on March 28, 2023.
Exciting news from the world of homebuilding technology - Higharc has just secured $4.05mm of venture funding from Ferguson Ventures, Simpson Strong-Tie Company, Standard Investments, and Starwood Capital Group. Higharc, founded in 2018, is a homebuilding SaaS tool set that uses cutting-edge technology to create customized home designs. Its technology allows users to manage plans, standards, and options in one place, get accurate materials lists for every home, get permit-ready construction documents, and offers 3D sales tools, helping clients eliminate material waste and costly errors that ultimately deliver better-built homes.
With this March 2023 round of funding, Higharc plans to accelerate the adoption of its technology by homebuilders across the US, cementing its position as a leading provider of homebuilding software solutions.
We’re big fans of how Ferguson Ventures has been deploying capital (ATTN other distributors: Take notes!) and we look forward to seeing how Higharc will look to transform the homebuilding industry and help, not hinder, B2B distributors. We mentioned Bluon, another great Ferguson investment, integrating with leading logistics marketplace Curri in this newsletter: Distribution’s Value Props Are Under Attack ⚔️.
BONUS: We’re currently working on a B2B CPQ (configure, price, quote software) report. Keep an eye on your inbox later this month!
Danger! Home Depot Continues to Encroach on B2B Distribution with Investment into…
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