Harris Williams Current Market Observations and Insights

Economic Outlook

  • In recent weeks, there have been early signs of green shoots across multiple economic dimensions, including retail sales, industrial production, employment indices, and optimism for future business activity.
  • While uncertainty remains around the shape and magnitude of the ultimate recovery amidst a resurgence of COVID-19 infections, many companies are recovering faster and to a greater extent than originally expected.

Debt Markets

  • Increased activity since the trough in March with significant variation depending on the quality and industry of the asset.
  • Groups that are trying to put money to work are finding that current deal flow is limited in both quantity and quality.
  • Lender appetite heavily dependent on size of opportunity – credit market for assets with less than $25 million in EBITDA is significantly tighter than for platforms of $25+ million in EBITDA.

Deep Sector Expertise and Execution Excellence

  • Harris Williams has a proven ability to understand complex technology-oriented  companies and position the nuances to deliver benchmark valuations.
  • Extensive experience and valuable insights from our dedicated global team provide real-time market insights from hundreds of touch points across the world and the firm.
  • Our professionals have a unique understanding of how to navigate and execute successfully amidst an unprecedented market environment.

Buyer Sentiment

  • After an initial period of inward focus, many PEGs have transitioned from a defensive stance with their portfolios to an offensive posture on both add-on and platform acquisitions.
  • Untouched cash pockets over the last six months increase the pressure to invest capital; however, investors remain highly focused on A-quality assets.
  • Feedback suggests a continued up-tick in M&A activity for the remainder of 2020 and beyond, although implications of U.S. elections and potential tax law changes are beginning to factor into near-term decision-making.

M&A Valuations

  • Based on HW deals with valuation feedback since March, multiples have consistently remained elevated as transaction volume has started to approach pre-COVID levels, albeit that the notion exists that many of the deals are smaller or "B"-grade.
  • Top-quality assets will continue to receive elevated levels of interest and competitive valuations, while, average businesses are more likely to see downward pressure on valuations.

Latest Harris Williams Market Insights

For access to Harris Williams’ latest insights and perspectives, email us at insights@harriswilliams.com
or visit www.harriswilliams.com/news-insights.

Industrial Technology Content and Resources

Market Trends: Automation

  • Automation is a critical success factor for production efficiency. Only excellent automation solutions make it possible to achieve consistently high quality, high throughput, and low production costs, which allows customers to lead the market and remain highly competitive.
  • While the initial automation and robotics revolution was started by the automotive industry, new industries such as medical, life sciences, food, consumer goods, and electronics are increasingly utilizing automation systems. Since 2005, non-automotive industries have increased their relative share of total orders with evolving application technologies driving strong automation adoption. This trend is expected to continue.
  • While Europe and North America contribute the highest share to the global automation market, Asia-Pacific is the largest growth driver globally and is expected to expand its market share in the future. In terms of innovation, Europe, Japan, and China are the main drivers of innovation in automation and converging operational technology with information technology.

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COVID-19 Impact

Short-Term Impact

  • With social distancing and remote working guidelines (e.g., with virtual commissioning) businesses are now looking at automation  solutions to help mitigate the pandemic risks to operations while increasing manufacturing flexibility and efficiency.
  • While automation solutions are a focus of corporate executives during the pandemic, unclear return on investment measures and timing of implementations amid economic uncertainty are delaying deployments, creating a drag on near-term performance, particularly in automation-stalwart end markets that were contracting long before the onset of COVID (i.e., automotive, heavy industry).

Long-Term Impact

  • The automation industry is expected to receive increased interest in, and application of, automation among various industries.
  • Alongside automation solutions, an increased demand for digitalized processes such as virtual commissioning and remote maintenance is expected.
  • Supply chains are expected to retain to a more local production, which, in most instances, will require the deployment of automation solutions.

Automation Benefits

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Sources:  Fortune Business Insights, Research and Markets, Statista, Control System Integrators Association, HW Intelligence

Smart Technology is shaping Smart Factories and Intelligent Manufacturing

Convergence of IT & OT: IT systems merge with operational technologies (OT)

  • Data-centric IT systems are being integrated in existing OT monitoring systems to create smarter, more efficient operations.
  • Industrial IoT is reshaping manufacturing.
  • Collaborative robots (Cobots) have an increasing share in the workforce.

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Everything as a Service (XaaS): Manufacturers evolve toward more service-centric business models

  • Manufacturers adopt a Product as a Service business model, where the product is delivered as a service or experience, while the customer does not take ownership of a physical product.
  • Manufacturing itself evolves to a service where businesses leverage a shared manufacturing infrastructure.

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Intelligent Manufacturing: Smarter manufacturing through intelligent connected systems

  • Intelligent Systems such as Artificial Intelligence and Machine Learning deliver instant manufacturing intelligence by analyzing large amounts of data in a few seconds.
  • AI and ML are powering intelligent, autonomous systems that can streamline processes at any stage of the value chain.

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Manufacturing Technology: New technology disrupts traditional manufacturing

  • Manufacturers develop, test and design their products through digital simulation (digital twins), thereby drastically decreasing R&D cost.
  • Intelligent autonomous devices are able to learn from their environment and make decisions independently.
  • Computer modeling tools enable companies to design materials with desired properties.

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Sources: 2019 Manufacturing Trends Report, International Federation of Robotics, Cisco Global Cloud Index, Industrial Ethernet Book

Industrial Automation: Value Chain

The value chain in industrial automation covers components and module manufacturers to machine builders and integrators, supplying systems as well as turnkey solutions to various industries. 

Component & Module Manufacturers

  • Clamps
  • Conveyors
  • Drives / Controls
  • End-of-Arm-Tools
  • Ergonomic handling
  • Linear guides
  • Machine vision / Visual solutions
  • Robotics
  • Warehouse handling / logistics

Machine Builders & Integrators

Subsector Deep Dive

  • Machine builders build “standard” machines and machine tools.
  • These machines can be adjusted to the specific action to be taken (within parameters).
  • Examples: CNC machinery, injection molding machines, cutting machines, etc.

Standard machinery can be part of a fully integrated line.

  • Integrators build (often turnkey) machinery and production lines for a specific task or process.
  • The design and engineering phase is one of the most crucial parts of the production process.
  • Examples: Engine production, quality inspection, assembly of any kind, etc.

End-users

  • Automotive
  • Electronics
  • Food & Beverage
  • Packaging
  • Pharma
  • Plastics

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Top 25 Market Participants

The global market for machine builders and system integrators is highly fragmented - the majority of the companies are located in Europe and the U.S.

Top 25 Machine Builders - Machining

Relevant Machine Building Revenue Estimates 2018 / 2019 based on public information (in $m)

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Top 25 System Integrators

Relevant System Integration Revenue Estimates 2018 / 2019 based on public information (in $m)

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Note: System integrators do not include integrators with focus on warehouse automation 
Sources: Control Engineering – 2020 System Integrator Giants, HW Intelligence

System Integrators – Landscape

To receive the latest landscapes, please contact hwIndustrialTechnology@harriswilliams.com.

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Notes: 
1. System integrators do not include integrators with focus on warehouse automation
2. Grey box denotes subsidiary asset of corporate parent or private equity group
Sources: Pitchbook, MergerMarket, S&P Capital IQ

Machine Builder - Landscape

To receive the latest landscapes, please contact hwIndustrialTechnology@harriswilliams.com.

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Sources: Pitchbook, MergerMarket, S&P Capital IQ

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Sources: Pitchbook, MergerMarket, S&P Capital IQ

Increasing M&A Momentum Across Machine Builders and Integrators

Select Notable Machine Builders and System Integrators M&A Activity 

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Note: Logos are representative of M&A participants and not comprehensive
Sources: Pitchbook, Mergermarket, S&P Capital IQ

Automation Public Market Observations1

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1. As of September 22, 2020
Source: S&P Capital IQ

Automation Companies Market Valuations1

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N/A: Not Available, NM: Not Meaningful

Select HW Integrated Assembly Solutions Case Studies

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Description

  • ttPT is the industry leader in CEE for “state-of-the-art” assembly and test systems offering a one-stop solution from design to after sales services.
  • Future-oriented focus with almost 90% of revenues for solutions that are used in next generation vehicles (e-mobility, autonomous driving, etc.).

Process Highlights

  • Harris Williams contacted a broad group of investors from Europe, the USA, and Asia.
  • Offers were received from both financial and strategic parties.
  • One party was particularly eager to acquire the company from early on. Competitive tension was held until Signing with a favorable outcome for all selling parties.

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Description

  • Develops and manufactures production lines for discrete industrial automation and markets worldwide.
  • Clear innovation leader, developing new solutions for future-oriented end-markets, enabling customers to efficiently manufacture their state-of-the-art products.

Process Highlights

  • Harris Williams was mandated to evaluate strategic options for the company following strong growth of the business.
  • Harris Williams managed the negotiations with Tesla, resulting in a purchase price ~18% over the initial offer.

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Description

  • Leading intelligent automation integrator providing its customers with highly engineered systems that lower customer production costs, accelerate new product development, improve quality control, and enhance product safety.
  • One of the largest custom integrators of factory automation solutions in North America.

Process Highlights

  • Harris Williams contacted a broad group of buyers with a focused message on the automation segment.
  • Received IOIs from both financial sponsors and strategic buyers, but ultimately the client elected to proceed with a select group of sponsors.
  • Continued competitive tension through final bids yielded a successful outcome.