Smart manufacturing technologies are transforming the way things are made and generating considerable M&A activity as manufacturers, often set in their ways, adapt and restructure.
According to Core Industrial Partners Managing Partner John May, “Industry adaptation has been slow and limited due to high cost, insufficient workforce training and knowledge, and lack of understanding of the true utilization and impact of these tools.”
Chicago-based Core is one of the private equity firms pushing for change in the sector, but PE is getting more competition from strategic investors as established manufacturers get more involved. In a recent white paper, Foley & Lardner finds that these investors are turning increasingly to corporate venture capital, or CVC, or joint ventures to acquire innovative technologies.
“Companies have adapted; it’s not just private equity that has dry powder. There are more tools in the toolbox, longer plays as companies see how it plays out,” says Jonathan Gabriel, a Foley partner who co-authored the M&A chapter in the white paper. “They can’t stand by on innovation.”
The paper refers to “a seemingly inexorable march toward electrification and greater connectedness.” Manufacturing is relying increasingly on automation, robotics, 3D printing, and what Detroit-based Foley partner Steven Hilfinger calls “any use of technology.”
Although Hilfinger, who co-authored the M&A chapter in the paper, focuses on the automotive sector in his own work, he quickly adds, “It’s much broader than just cars, much broader than just automotive.”
May echoes these sentiments. “Smart manufacturing technologies have enabled a more connected manufacturing ecosystem,” is the way he puts it. PE firms support this trend through direct investment in support services like warehouse robotics, data sensors, and semiconductors as well as implementing smart manufacturing technologies like automation, sensors, Internet of Things, artificial intelligence and others in their portfolio companies.
“We invest in smart manufacturing technologies, processes and services that provide better communication, quality assurance, asset management, and streamline production across our portfolio companies,” May says.
Core, which targets lower middle-market companies, has not experienced the slow down the market has seen and has completed a number of deals this year, he says.
Last month, Core announced that Gem Manufacturing, a company the PE firm acquired only in February, has acquired Coining Manufacturing and Precision Machine Products, a Clifton, N.J.-based company that provides microelectronic and sonic packages, sensors, implantable devices, connectors, terminals, and other products to aerospace and defense, medical, and electronics end markets. This brought Core’s acquisitions in 2023 to six, including Gem.
Lawyers Gabriel and Hilfinger agree that overall deal flow has slowed down, but M&A practitioners remain active. “The pace of deal execution has slowed,” says Gabriel, “but there is a lot of activity. Legal is getting involved earlier.” Strategies have become longer term and due diligence has taken on more importance, they say.
The current slowdown in deals could end soon, however. Once interest rates are seen to have peaked, the pace of actually closing deals could increase. “It might start as a trickle,” says Gabriel, “and then a steady stream.”
