Geopolitical turmoil, coupled with higher logistic costs and unpredictable supply chain disruptions are forcing companies to reassess the benefits of an international supply chain. Expect an increase in manufacturing deals as a result, dealmakers say.

Higher costs and increased risks with international operations are pushing businesses to seek domestic acquisitions to consolidate lower-tier manufacturing suppliers and bring their supply chain back to North America, says Woodward Park Partners Managing Director Greg McGowan.

“The cost of utilizing international suppliers to manufacture products for the U.S. market has increased significantly, while at the same time technology advancements in automation and AI have decreased the costs to manufacture in North America,” McGowan says. “These changes to the market have resulted in private equity and strategic buyers to increasingly seek investments in the North America industrials manufacturing sector.

“Industrials sectors not dependent on cyclical demand, including companies providing automation and AI technology solutions that lower manufacturing costs, will continue to benefit from the tailwinds caused by the on-shoring of manufacturing in North America,” he adds.

In June, Blackford Capital-backed PACIV acquired Eight12 Automation, an automation and controls engineering provider. Eight12 serves customers in the life sciences, medical device, food and beverage, steel processing, automotive assembly, consumer products and water filtration sectors. The industrials automation sector is projected to reach a market size of about $395 billion by 2029, according to Blackford.

Regulation Push

Another factor driving growth is legislation aimed at encouraging domestic investment through the CHIPS and Science Act and Inflation Reduction Act, says Core Industrial Partners Managing Partner John May. “These pieces of legislation are the backbone for the reshoring trends we have seen, as well as the push towards sustainable and shorter supply chains,” he says. “The necessary result is a need to focus on smarter manufacturing and levering the newest technologies available to manufacturers, such as AI, to remain competitive.

“As investors look to increase efficiency, accuracy, security and worker safety in the manufacturing setting, generative AI is being used as top technology that can impact business outcomes,” May says. “We believe M&A in manufacturing is likely to remain vigilant on how AI can be leveraged as an opportunity for investment.”