Market watchers are predicting an intense bout of consolidation among UK hardware distributors following research indicating that a quarter of them are bleeding red ink.

Research house Plimsoll concluded hardware players are collectively squandering £873m of profits by failing to control their cost base.

Plimsoll concluded that nearly three-quarters of the firms surveyed would make more money under new ownership, leading the market-watcher to predict greater merger and acquisition (M&A) levels in the second half of the year.

David Pattison, senior analyst at Plimsoll, said the number of distributors making losses was up significantly on previous years.

“If you look at the difference between what many distributors are making and what they realistically should be delivering, there is now a big divide,” he said. “The changes they have to make aren’t that radical.”

Pattison listed poor control of stock and bad debts as two areas where distributors could improve. Too many firms were also “taking sales for sales’ sake”, he added.

“As the need to lower the cost base and improve productivity increases, it makes sense if two firms think they can be stronger as a pair.”

Scott Dobson, managing director at voice distributor Vcomm, argued that too many distributors were damaging their bottom lines by failing to take on newer technologies.

“If firms are not taking on newer, higher-margin products, they will get to the point where turnover is increasing, but profits are falling,” he said. “A lot of distributors who were once leading edge have continued along the same old path and have suddenly realised they are not making money.”

Dobson agreed that consolidation was accelerating among commodity distributors.

“A distribution business is very easy to replicate and grow by acquisition, especially when it’s in the commodity space,” he added.

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