Is Manufacturing Next In Line For Technology M&A Disruption?
Chinese companies have been busy investing overseas in recent years, spending a record $207 billion on overseas acquisitions in 2016. While 2017 will not reach that high watermark, it will likely still top $150 billion. Many of these deals were – and will be - in the manufacturing space.
This M&A interest is by no means solely a Chinese phenomenon. Manufacturing companies across the World, and those supplying them with equipment, are leveraging acquisitions for a variety of reasons including to increase market share, acquire recognised brand names and gain access to sales channels.
Technology is also big M&A driver for the manufacturing space. Specifically, technologies like 3D printing, augmented reality, robotics and the Internet of Things (IoT) have great disruptive potential - and are already helping manufacturers enhance their competitiveness. They could one day make some current business strategies and models look decidedly archaic. For one thing, they may slow – or even reverse – the outsourcing of manufacturing to the less developed regions of the World.
M&A waiting in the wings?
Daniel Shea, Managing Director, BDO USA, expects technology companies and manufacturing equipment makers to continue investing in these areas, given the magnitude of expected impact to the manufacturing sector. The payoff will be significant.
“The new technologies all relate to the emergence of Industry 4.0 – an umbrella term for the data-driven disruption of manufacturing. Part of the ongoing innovation is happening in big companies, and part in SMEs and start-ups. The latter are probably going to be gobbled up by bigger tech companies as well as equipment manufacturers as the technologies and markets mature,” Shea says.
He also sees Industry 4.0 as a catalyst for older business owners of manufacturing companies to sell.
“Indeed, some owners are looking at IoT, 3D printers or augmented reality and thinking: ‘I am almost 60. My company is doing well, I have had a good run and my risk tolerance has lessened with age. Maybe this is the time to sell to someone who can make the necessary investments and help take the company to the next level’.
Shea adds that, “Strategic acquirers and operations-focused private equity firms will certainly like to talk to those sellers.”
These trends apply not only to the US but across much of the western world where baby boomers own a large percentage of manufacturing companies, especially in the SME segment.
Looking closer at the new technologies show how each offer opportunities for manufacturing companies to create competitive edges. While I look at each in a separate article, I think it is a good idea to give a brief introduction of them here.
China’s quest for increased automation to offset rising labour costs is clearly evident in robotics. IDC predicts that Chinese companies will spend $59 billion on robotics by 2020. The global total spend will reach $188 billion.
While most investments are made in industrial robotics, a growing percentage is spent on collaborative robots. These next-generation robots are smaller, nimbler not to mention cheaper than their industrial cousins, and therefore more accessible. Their disruptive potential could be far greater than that of their industrial cousins.
The secretive augmented reality (AR) start-up Magic Leap recently announced a new $502 million round of funding. It is far from the only AR company seeing a lot of funding. CB Insights figures show that AR and virtual reality (VR) companies had a breakout 2016, both for funding and deals.
After a quiet start, AR is drawing level with VR. The main reason is that AR is already improving manufacturing processes, including assembly, training, maintenance and quality assurance.
In terms of pure disruption of the prevailing business strategies in the manufacturing space, 3D printing’s impact will be hard to top. It looks set to change not just how, but also where, products are made.
However, it still a relatively immature industry, and I expect to see a lot of M&A activity tied to scaling, consolidation, expanding services and improving the technology in the near future. Not least because of recent technological developments that radically increase 3D printers’ ability to print in metals.
Internet of Things
Internet of Things (IoT) is in many ways the platform for other new technologies. IoT sensors and devices’ data form the foundation of big data analysis, thus enabling manufacturing companies to create efficiencies and boost innovation. The same data plays a crucial role in optimising the impact of 3D printers, augmented reality and robotics.
However, investing in new technologies can be costly. Luckily, tax credits and grants could help lower the price of investing in new technologies like IoT, augmented reality and collaborative robots.
Nanotech and bio-manufacturing
Moving further into the future of manufacturing, microscopic robots, algae and plants may start to take on central functions.
Although nanobots and other kinds of nanotech are still in their infancy, they have been used for microscopic manufacturing processes for a while. Scaling remains a key issue. Luckily that is something that is close to the heart of the manufacturing industry.
Biomanufacturing uses biological systems to produce material and molecules. So far, it has mainly been the remit of medicinal producers, but it also holds great promise in regard to other industrial applications. Doubly so thanks to the emergence of new genetic engineering processes.