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The State of the Industrial Products & Services Market in 2021

The Industrial Products & Services sector is vast and very diversified and covers the whole range of manufacturing. Globalization, new technologies, and regulations impact the existing business models of companies within the industrial products & services industry. The following segments exemplify the different activities:

  • Industrial Automation
  • Industrial Products and Services
  • Manufacturing
  • Industrial Electronics

According to different sources, the global Industrial market is expected to keep growing from approx. $33.6 bn in 2020 to $44.1 bn in 2025.

Global M&A activity remains very strong, fueled by both strategic and private equity investors. From the strategic point of view, current players need to expand activities into new niches to diversify their portfolios further. Additionally, new manufacturing technologies, as well as growing demand from developing market, are fostering growth in the sector. In a period of immense change, creating value in the future depends on thinking beyond traditional business and operating models.

Since the sector is in a clear consolidation process, its appeal for financial investors is not new. Private Equity players have been on both sides of transactions over the last five years, trying to exit and get a good return in a robust M&A environment or looking for add-ons to their existing invested platforms to complement their current offerings.

In this landscape, deals will look different going forward from previous years:

  • large market with over 1.300 transactions per year
  • Average deal size in 2021 stands high at approx. 318.8 m. EUR
  • Number of transactions dropped in 2020 due to COVID-19, but have rebound strong in 2021

Although far from the all-time highs of 2018, valuation multiples remain high, ranging from 8.4x to 26x, depending on the segment. Also, there is no distinctive difference between the valuation of listed and private companies’ M&A transactions.

EBITDA multiples by sectorSource: Mergermarket     

Where do the opportunities lie? 

The future in this sector is still promising globally, and according to different sources, higher growth rates are expected in the Asian markets. In the established markets of the US and Europe, the potential for consolidation exists as weaker market participants struggle with keeping up with challenging market environments.

The key factors that will keep on stimulating M&A transactions are scale, portfolio diversification, and new niche products and services as well as new technologies.

On the other hand, when looking at cross-border transactions, different regulatory environments imply the preference of big players to look for well-established companies in the target markets rather than smaller ones that might demand a great effort from the acquirer and a higher risk.

What are the challenges? 

Operating margins are already low in the industry, but as the market matures and competition grows, the clients also learn and design new formulas to put more pressure on prices. Globalization, specialization, and scale are becoming the driving factors to succeed in the Industrial Products and Services market.

Overcoming these challenges can’t be done through better execution alone – companies must also consider alternative business models and capital allocation changes to deliver advantaged rates of economic profit growth versus peers.

Trends in the Industrial sector

Companies in the Industrial Products and Services sector need to adapt to four significant trends: navigating disruption in the manufacturing industry, digital investments, supply chain resilience, and adapting to new work workplaces. These factors drive change in the coming months and years in the sector. One key strategic option is to acquire companies in order to gain a competitive advantage. Another strategic option is to optimize the portfolio and divest businesses, which no longer add value to the company's strategy.

Finally, different regulations in each country will continue to be the main reason for international searches and cross-border transactions. This applies equally to the different categories and thus perpetuates the current dynamics of M&A activity in this sector over the next few years.

By:
Eduardo González-Gallarza
CDI Global Iberia

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