Investment bankers who focus on the manufacturing and industrial sector regularly see a large variety of deals. This sector also tends to have highly focused investment criteria from private equity firms, and therefore demands a concentrated approach when a banker is considering potential sell-side engagements. There are many key factors for an investment banker to be mindful of when looking for opportunities in niche manufacturing and industrial deals, especially in terms of current industry trends.
Specificity of PE Firm Criteria:
Private equity firms are known to be very specific in their criteria for niche manufacturing and industrial deals. On the sell-side, Brian Sommer of CDI Global LLC explained “in the space that I’ve been working in, a lot of PE firms want to see certain kinds of supply chains for technology or mining and machinery that gets put into semiconductors. They also want to invest in particular areas of geographic focus for economic and security reasons for their own companies.”
Concentration on a Limited Area:
A common theme for investment bankers is that they are looking to concentrate on a specific manufacturing and industrial niche and then build out from it. The overall supply chain is often considered as well. John Slater of FOCUS Investment Banking added “we are focused on the advanced manufacturing sector where we’ve been active on both sellside and buyside. Our typical client produces high precision metal components within the supply chain of large enterprises in demanding sectors such as aerospace and defense, medical device and automation tooling. This sector has been experiencing significant consolidation due to customers’ desire to work with larger, more sophisticated and better capitalized suppliers.”
Need for Sector Experience:
It is advisable for an investment banker to ensure they have sufficient experience in a given sector before fully committing to it. Slater agreed that the current investment environment requires industry focus. However, he cautions that intermediaries should gauge their experience and strength in a particular sector before deciding to chase the next shiny object. “For example, you might note that the commercial space industry is a fast growing sector and decide to go after the SpaceX supply chain, researching possible targets, putting together a marketing plan, etc. We’re in a highly competitive industry. Without experience in the sector, you’re always going to be behind.
Possible Commercial/Military Crossover for Niche Manufacturing and Industrial Deals:
One niche that many bankers are currently considering is the crossover between the commercial and military space. Alex Hamilton of Donald Capital said that “what we’re really focusing on is aerospace and defense, emerging technologies, and things that are called dual use technologies. So if you have a commercial application that can be applied to the military, there’s a huge demand for that. We try to double enterprise value by bringing in some of these dual use technologies. I also think anything that I would call a force enabler, like AI, is basically going to drive dollars.”
The manufacturing and industrial sector presents a wealth or opportunities for specific dealmaking, but many factors come into play when determining a strategy. By targeting a specific niche and understanding the unique demands of private equity firms in the sector, investment bankers can better position themselves for key opportunities in niche manufacturing and industrial deals.
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By Bill Bowler, Opus Connect
July 2024
