Has Anyone Acquired or Considered an Exclusive Distributor/Dealer Business?

April 17, 2025

by a searcher from INSEAD in San Francisco, CA, USA

I’ve recently been evaluating a few businesses that operate as exclusive distributors for major brands. One example is a company with the exclusive territory for industrial cleaning equipment. Another is a mobility equipment dealer. At first glance, these models are appealing—strong brand association, semi-protected territories, recurring service and parts revenue. But I’m wrestling with how to evaluate the risk of supplier dependency and lack of true ownership over the customer or product. For example, what happens if the OEM decides to revoke or reassign the territory? How defensible is the business if the brand relationship deteriorates? Would love to hear from anyone who's looked at these types of deals—whether in industrial, medical devices, mobility, HVAC, etc.

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Reply by a searcher
from Harvard University in San Francisco, CA, USA

These business models can be super risky, so you need to choose very carefully. I have experience with at least one PE-backed "captive dealer" that had to shut down when the major brand ("OEM" for simplicity) pulled the line and decided to go direct. Complete equity wipeout. You need to see that the distributor has a correspondingly strong market position to offset the dependence on the OEM - in other words, mutual dependency. In this context, a contract and what a seller represents as a "great long-term relationship" between dealer and OEM are usually insufficient. Strong (and recurring) customer relationships, some kind of asset-based or geographic monopoly (difficult/expensive to replicate), difficult-to-replicate value add, or some other source of leverage is what I would look for. Example: the only Caterpillar authorized dealer and MRO business in an active mining region (not a good search fund deal, but you get the point). As a mental exercise, I would think about what the negotiation would be like for a new agreement between the distributor/dealer and OEM. What are the sources and extent of leverage does the dealer have? The classic "5 forces" analysis would be a good framework. In the types of businesses you mention, this type of leverage is rare...caveat emptor.

Reply by an intermediary
from City University of New York, Bernard M. Baruch College in San Francisco Bay Area, CA, USA

Jason, I have an exclusive for a major brand and sell it to selective retailers. I generated $25m last year in sales. I am locked in with the manufacturer and the retailer and have had this relationship for over 15 years. SBA looks it this as a risk with high concentration with 1 account and 1 manufacturer. It's hard to get a loan, but to me you need to look at it on a case by case and weigh the risks. You would probably need to self finance or put down significant collateral. If you would like to discuss, I can be reached at###-###-#### Marty

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