Environmental considerations are fostering innovation in materials across the industrial landscape, including packaging, building products, and chemicals. We are seeing a growing materials substitution trend benefiting innovative materials companies, including a client that is making a product out of recycled glass. Winning companies are combining green advantages with superior performance—there doesn’t have to be a compromise.
2023 Outlook - January 12, 2023
From the internet of things to temperature-stable packaging, mission-critical components, environmentally friendlier chemicals, and cutting-edge building materials, the industrials space offers a wealth of opportunities. Here, senior bankers from the Harris Williams Industrials Group discuss key trends creating M&A opportunities, especially active subsectors, and buyer dynamics in the industry.
Which industry trends are you watching over the next several months?
One of the most exciting trends in industrials is automation, creating M&A opportunities within industrial technology and packaging. Companies in all sectors are seeing the benefits of automating aspects of production, especially in the context of the tight labor market and the shift toward nearshoring.
Winning companies are combining green advantages with superior performance—there doesn’t have to be a compromise.
Which subsectors do you think will be most active?
Several subsectors within industrials will be active over the next year:
Building Products & Materials
Similarly, building products has experienced some headwinds, but the long-term demand drivers are strong, and we expect interest to be there for the right assets. This is especially true for platforms focused on higher-end renovation and restoration, an area in which we think consumers will be more insulated from the macro environment.
Industrial Technology
Industrial technology is one to watch because of the key role it plays in helping companies manage a tight labor market and productivity.
Packaging
Packaging also tends to do well across economic environments due to its ubiquity and diverse end markets—across categories and price points, so many products require packaging. Packaging for the healthcare industry is one especially important area for us. Our team is seeing strong buyer interest in companies that can meet the extreme product protection requirements of healthcare companies, including maintaining extremely low temperatures across shipping modes.
Chemicals & Specialty Materials
While specialty chemicals faced supply chain challenges in 2022, we think in 2023 it will benefit from less volatile input cost, pricing, and earnings dynamics.
Building Products & Materials
Similarly, building products has experienced some headwinds, but the long-term demand drivers are strong, and we expect interest to be there for the right assets. This is especially true for platforms focused on higher-end renovation and restoration, an area in which we think consumers will be more insulated from the macro environment.
Industrial Technology
Industrial technology is one to watch because of the key role it plays in helping companies manage a tight labor market and productivity.
How are buyer dynamics in industrials evolving?
Inflation is focusing buyers on long-term pricing and earnings dynamics—more than ever, they need to understand what EBITDA will look like at different points in an economic cycle. And, given tighter credit markets, strategic buyers have been playing a larger role in many of our transactions.
Overall, despite market uncertainty, our team is very much engaged with active buyers and sellers. There’s an elevated level of dialogue happening given all the market dynamics at play, with investors looking to put capital to work in top-quality companies.