What separates the best industrial investment opportunities from the rest? Here, we draw from recent experience advising Vantage Elevator Solutions on its majority sale to Ontario Teachers’ Pension Plan Board to explore what defines a best-in-class industrial asset in the current M&A environment.
What most powerfully differentiates an industrial company in the current M&A environment?
Webb: Buyers are looking for a market leader with multiple proven growth levers and downside protection. Ideally those growth levers include both organic and inorganic initiatives, and the company’s downside protection has demonstrated resiliency through prior market cycles. That’s the kind of platform that garners a lot of excitement.
Vantage is a good example. It’s a leading manufacturer of aftermarket elevator components and systems, selling to a fragmented customer base of independent elevator service technicians. While the industry’s large OEMs supply and service most new elevator installations, Vantage focuses on the subsequent modernization and maintenance of elevators. Its breadth of offerings and expertise, national installed base, and excellent service levels make the company a preferred provider to independent elevator service providers competing with the OEMs.
Logue: Here, as in other industrial subsectors, scale creates a flywheel effect that perpetuates itself. A more expansive product portfolio allows a company to serve customers more comprehensively and gain share of wallet. Vantage, for example, continues to pursue M&A to expand both its footprint and product offering, accelerating its ability to cross-sell with existing customers as well as win new customers with their full offering.
Webb: Regarding downside protection, Vantage competes in an industry with strict regulations requiring a defined, recurring maintenance schedule. This drives non-discretionary, steady demand for elevator maintenance and modernization that cannot be delayed or neglected indefinitely, regardless of economic cycles or even pandemics. Furthermore, Vantage’s market leadership, unique value proposition, and national installed base lead to very sticky customer relationships.
Can you further expand on how Vantage fosters strong, recurring relationships with its customer base?
Denoncourt: A sticky customer base is important and is a big part of the Vantage story. For starters, if a company serves an industry with high cost of failure relative to the product or service provided, and that company’s service or product reliably meets those needs, it is likely to have a more loyal customer base.
This is true with elevator repair. Elevator components are used in mission-critical applications, where elevator failure results in costly or even catastrophic issues, so using a proven, high-quality product is important. Repair service providers are not readily willing to change brands from a product they trust for a small price advantage, particularly when parts are a small portion of overall project cost.
Walter: If a customer has to make a return trip to replace a defective component, it impacts that service provider’s reputation as well as its labor profitability. Labor costs typically far outweigh the cost of elevator parts for a given project. In addition to product reliability, Vantage does many things to help its customers complete projects more efficiently. For example, Vantage bundles and pre-assembles products to reduce labor and assembly time for the service providers, and its product breadth and network drive faster lead times. All of this contributes to strong customer retention.
How do leading industrial companies grow in stable or flat end markets like the elevator maintenance space?
Logue: From an organic perspective, product innovation and sales excellence are two key levers to drive growth in nearly any economic environment. New technologies are offering opportunities for product innovation in many industries. For Vantage, new destination dispatch elevators spurred the company to create a destination dispatch controller, with hybrid features that can be toggled on and off. Leaders like Vantage have sophisticated teams identifying new growth opportunities and capturing them through product innovation.
Denoncourt: On the sales side, Vantage is in the process of expanding its sales resources while enhancing its focus on underpenetrated segments. Paired with Vantage’s differentiated market position and value proposition, a more sophisticated sales function holds massive upside.
Webb: Many industrial assets operate in highly fragmented spaces. Leaders typically have great M&A stories, supported by a strategic M&A profile and playbook. Vantage has completed multiple acquisitions and has a strong pipeline of actionable targets inside and outside of the U.S. The company has proven it can integrate companies smoothly and bring them all onto one ERP system. For leaders like Vantage, M&A opens the door to new geographies, new product categories, new accounts, and more share of wallet.
Select Relevant Transactions:
The Harris Williams Industrials Group has a long-standing heritage of providing superior-quality advisory services to a spectrum of growth and manufacturing businesses. We've represented companies in a variety of industries that produce niche products with leading market positions and technologies.