Globalization and the rise of ‘smart manufacturing’

The European industry for Industrial Machinery leads the world producing €650bn in annual revenues (one-third of global production and half of global exports), as well as the highest quality and most innovative products. However, major change is under way. Pursuing traditional strategies is no guarantee of continued success. An increasing number of players are responding proactively to shifting growth patterns and profit-pools by using corporate transactions.

Key insights

• Structural change: The Industrial Machinery market remains fragmented (80% of European actors are SMEs), however customers continue to get bigger and more international. Also, profit pools are shifting, both geographically and along the value chain. Businesses need to adapt their business models to future-proof operations and grow beyond the core.
• Corporate M&A activity rising: Our global sector team is observing above average M&A activity and a substantial increase in transactions in 2016 (excluding alliances). Important catalysts for deals include technology, digitization and geographic growth. Europe has been the most popular region for acquirers, with 41% of all M&A transactions, followed by the US and China, which is an important source of new deal demand and also growth.
• Tapping growth beyond the core: Businesses are accessing growth in attractive emerging markets (China) by transitioning away from traditional export models towards more integrated global offerings. Horizontal and vertical integration are front and center of strategic thoughts and corporate activity. For instance, Components and Machinery manufacturers are acquiring companies with automation & digital know-how to add value, and vice-versa.
• Valuations are typically high: Technological know-how is top of buyers’ shopping lists. Premium valuations are being paid for any business that delivers technology, innovation and/or smart software capabilities. Industry 4.0 (automation & data exchange) is in especially high demand: while the average valuation for the sector is 11x EBITDA, Software is receiving 16x EBITDA. Digital will continue to be the biggest value-add going forward.