Article - April 11, 2024
For decades, the desire to advance and digitize critical systems and work processes has spurred investment and innovation in the industrial technology market. Industrial technologies of all kinds are helping businesses modernize operations to create safer workplaces and achieve more efficient asset utilization, sustainable practices, adaptability, and cost-effectiveness.
Below, senior professionals in our Industrials Group discuss the M&A potential within industrial technology, particularly in areas with a critical safety component. They also share why recent Harris Williams client Potter Global Technologies attracted strong investor interest in its recent acquisition.
Resilient Demand in Regulated Environments
Industrial technology companies benefit from strong tailwinds and resilient markets, especially when they operate in areas with legal and regulatory mandates. Legally mandated products, with high levels of inspection and enforcement, make demand more resilient through economic cycles. They can also provide consistent, predictable growth from constantly evolving and increasingly complex codes and regulations.
John Arendale, a managing director, says there’s substantial compliance and human risk if these products are inoperable. “As regulations change, technologies must be updated to new codes, and timely repair and maintenance are essential to keep technology solutions online. If building operators fail to meet these code requirements, then they lose their occupancy certificate and must shut down,” he explains.
“Regulations and code requirements are also becoming increasingly complex and integrated across sectors—including fire alarm, fire suppression, access control, and mass communications—and end markets such as data centers, primary and secondary education, and warehouses. This opens the door for companies to introduce integrated and connected solutions, either through new product development or strategic M&A,” adds Chris Toussaint, a director.
Ongoing investment in critical infrastructure across the built environment is also fueling industrial technology demand. The U.S. Infrastructure and Jobs Act, for instance, promises $550 billion of new federal investment to rebuild America’s roads and bridges, water infrastructure, internet, resilience, traffic infrastructure, buildings, and more.1 “Broad infrastructure investment drives trickle down demand for industrial technologies used in rebuilds or repairs to enhance efficiency, safety, or security,” says Toussaint.
At the same time, emerging technologies are becoming a more cost-effective option to create efficiencies compared to more expensive and longer lead-time upgrades to physical infrastructure. “Technology such as sensors, IoT, and data analytics, can be a lower-cost alternative to labor-intensive tasks,” notes Eric Logue, a managing director. “These industrial technologies are saving time and creating process efficiencies while providing better, real-time information for predictive maintenance, productivity, and preventing critical system failures that could lead to significant loss of life or property.”
For these reasons, mission-critical industrial technology companies continue to attract significant interest in the market. A recent Harris Williams client, DMC Power, is a prime example. The company designs and manufactures a disruptive connector technology system that greatly improves energy transmission, reduces installation time, and increases worker safety for high-voltage utility infrastructure. DMC Power was recently sold to Golden Gate Capital in 2023.
Trafficware, owned by Cubic Corporation, is another exemplar in the space. It’s a leading provider of intelligent traffic solutions with integrated software, IoT devices, and hardware that optimize the flow of motorist and pedestrian traffic for municipalities.
Lastly, Potter Global Technologies, highlighted in detail below, is a trusted global provider of fire safety and communication products that protect people and buildings during emergency situations. Harris Williams recently advised the company on its acquisition by KKR.
Potter: A Leader in the Fire Safety Market
Potter Global Technologies exemplifies the M&A opportunities within industrial technology. Its core market of fire safety and emergency communications is large, growing, and highly resilient. Growth is supported by many trends, including an increasing emphasis on building safety and security, which is motivating new code standards.
“The company provides legally required products that have new codes and standards approximately every three years,” says Arendale. “These new compliance requirements drive consistent demand for new or upgraded products,” he adds. In addition, increasing regulatory requirements, state and federal funding, and public safety awareness in the wake of recent tragedies, like active shooter situations, are stimulating the retrofit of emergency communications systems in numerous public buildings.
One of Potter’s defining characteristics is its industry knowledge and experience with product certification processes, allowing the business to stay in front of upcoming code introductions. "Potter stays ahead of regulation and code changes through robust product development and participation on code development committees,” explains Chris Toussaint, a director. “The company’s technical expertise, demonstrated knowledge of codes and regulations, continuous innovation, and product quality and reliability have contributed to its strong customer relationships and consistent above-market growth.”
Meanwhile, strategically investing in engineering, sales, and marketing and building out a more robust management team have helped Potter expand its core category into adjacent verticals. “Potter has been a longtime market leader with a well-respected brand in fire sprinkler monitoring, which is a required piece of test and measurement equipment that ensures the efficacy of a fire sprinkler system,” says Logue. “Under Gryphon’s ownership, Potter built around that core brand through M&A and organic investment in technology and engineering resources to become a full solutions provider of fire sprinkler, fire alarm, and emergency communications.”
In this area, Harris Williams has been a thought partner to Potter since it was acquired by Gryphon Investors in 2017. “With Gryphon’s backing, Potter sought adjacent technologies to its fire alarm and suppression systems that were also legally mandated,” notes Arendale. “The company entered emergency communications through the acquisition of Valcom and extended its communication solutions into high-rise buildings via an acquisition of TowerIQ and new product development. It continues to use this proven strategy to drive growth.”
Abundant White Space
With a backdrop of market resiliency and legal mandates, there is considerable opportunity for companies that can provide quality technology solutions to make industrial, commercial, and municipal spaces safer, smarter, and more efficient. In addition, increased state and federal infrastructure spending, a rising focus on protecting the public from crises, and growing regulations signal a strong market for industrial technology solutions going forward.
As Potter Global Technologies demonstrates, companies participating in the industrial technology segment have many ways to establish competitive differentiation and build platforms of scale organically and through M&A. “There is highly actionable white space in many segments as technology capabilities advance and become more integrated,” says Toussaint.
“Product quality and reliability are critical, as is ensuring products stay current with changing building codes and certification processes. Leaders that excel in these areas can capture market share and expand their brands,” adds Logue.
To discuss M&A opportunities in industrial technology, please contact our senior professionals.
