In industrial services, those subsectors perceived as low risk, like logistics and packaging, or maturing like robotics, remain resilient in today’s dealmaking environment, sources tell Mergers & Acquisitions.
“There has been a de-risking shift away from subsectors perceived to be economically cyclical within the industrials space, including residential construction and original equipment manufacturing to the automotive sector,” says Eric Andreozzi, head of industrial services for Deloitte Corporate Finance LLC.
“Strong and growing companies in some of the more protected sectors, such as logistics and packaging, continue to draw investor interest,” says Andreozzi, “but those which are at the start of a difficult cycle, like residential housing, are having more difficulty in the market.”
Uzair Dossani, managing director, North American direct private equity at Intermediate Capital Group, says if the average exit multiple in industrials was 12x-Ebitda last year, its 11x Ebitda now in a range that is between 10x- and 15x-Ebitda, dragged down by weaker subsectors.
“We continue to get strong multiples for packaging and other businesses which are less susceptible to interest rate swings, inflationary pressures, and supply chain issues,” Andreozzi says.
While supply chain bottlenecks hurt some subsectors of manufacturing, it strengthened logistics, Dossani says. “A lot of supply chain issues are solved by logistics. Companies may not have available labor” or contend with inflation. “Logistics firms provide alternatives.”
Dossani has spearheaded two investments for ICG. In June the firm announced an investment into Seaway, a provider of injection-molded components and services for the medical device and industrial industries. A year earlier, it made an investment into Gil-Bar, a maker of heating, ventilation and air conditioning products. Both these companies have elements of logistics, according to Dossani.
Now, ICG is searching for blue-collar labor businesses leveraging technology and transportation and utilities investments. “We’re focused on thematic trends,” says Dossani. “We proactively identify companies that allow us to play on those trends. We approach early, and if we can’t preempt a sale process, we’ve got relationships” to improve odds in a competitive bidding process.
Steve Dana, partner at technology investment bank Drake Star Partners, advises in advanced manufacturing deals, and says robotics and machine learning are gaining traction to deal with labor shortages in the supply chain.
He’s advising a maker of “cobots” — collaborative robots — used in this case to assist in welding. Welding is lucrative but it fell out of favor as a vocation in part because of the inherent dangers of working with high heat and fumes.
“Now because of advancements in the cloud, sensing and programming, the technology is getting better and better. We’re at a tipping point. A lot becomes feasible,” Dana says.