Managing Director Patrick McNulty says industrial technology, packaging and specialty materials will attract the most attention among industrial investors in 2019. McNulty is watching interest rates and the impacts of tariffs, and advises management teams to focus on their backlogs, gaining as much forward visibility as possible. In McNulty’s view, strategic buyers and investors should remain committed to their core strategies this year, and, as always, seek companies with outstanding management teams and clearly defined growth plans.

Looking Ahead

Within your industry, which sub-sectors do you anticipate experiencing the highest levels of interest? Why?

Industrial technology continues to attract attention, as companies strive to do more with less and boost efficiency. Packaging has performed well over various cycles, and packaging companies are investing in R&D to stay ahead of consumer behavior. Packaging applications are becoming more complex, dynamic, and technical, with increased crossover into areas like healthcare.

Within building products, interest is strongest in sectors linked to repair and remodel, since those tend to have the steadiest demand.

Finally, specialty materials continues to amaze us: Whether in blending, formulations, coatings, adhesives, or converting, the sky is the limit on what new technology can do for end users.

Which metrics are you watching most closely in relation to the performance of companies in your industry?

At the company level, we’re watching backlog and input costs. We are also monitoring growth capex plans.

Which industry-specific trends or issues are you watching most closely?

Interest rates and, more broadly, global production and consumer confidence.

Which geopolitical and/or macroeconomic issues are most relevant to your industry? Why?

Global tariffs and China remain very relevant to the broader global industrial manufacturing dialogue.

Given the length of the current bull market, what should private companies, private equity groups and strategic buyers be thinking about?

Management teams should be thinking about backlog and forward visibility as best they can. They should be prepared to manage costs and capex if and when they sense weakness in their forward calendar. Private equity groups should be patient and not overreact: There will be plenty of opportunity to invest dollars even if we experience a significant slowdown. Strategic buyers should stay focused on their core strategies. Some of the best moves to accelerate earnings can be made during periods of uncertainty.

Which qualities make acquisition targets most appealing in a more challenging operating and investing environment?

Companies with engaged and proactive management teams. Those who have a real sense of how their business will perform during challenging times are the ones with whom you want to partner.