Industrial Technology
2023 ANNUAL REPORT
INDUSTRIAL TECH SUMMARY & OUTLOOK
M&A
TRENDS
Harbor View Advisors conducted our second annual survey, engaging active lower-middle market private equity funds across the United States (see page 2). The survey allowed us to gather insights into prevailing buyer sentiments about market activity expectations in 2024.
Following a relatively subdued dealmaking climate in 2023, lower -middle market investors are now gearing up to deploy capital more assertively. There seems to be a shift from the add -on acquisition trend of 2023 to what appears to be the emergence of the “year of the platform” in 2024. This shift of focus is expected to result in a notable increase of private equity-backed assets entering the market, contributing to a rise in deal volume compared to the previous year.
Despite the renewed vigor in the market, certain concerns from 2023 persist, such as the quality of available assets and discrepancies in valuation expectations between buyers and sellers. Premium multiples continue to be associated with A+ assets, while companies compelled to enter the market due to factors beyond their control may experience this valuation gap. In response to the scarcity of highquality assets, private equity firms are increasingly enlisting the support of buyside advisors to survey markets on their behalf, allowing them to focus on enhancing the operational aspects of their portfolio companies a trend that Harbor View has observed firsthand.
Although these factors might suggest the possibility of another measured year, the landscape of dealmaking is expected to become clearer as the Federal Reserve develops a defined plan for interest rate guidance. This key development will likely play a pivotal role in shaping the trajectory of market activities in the foreseeable future.
INDUSTRY COMMENTARY
“We're encouraged that the improvement in trends we experienced in the second half of fiscal year 2023 have carried into fiscal year '24. This is the first time since fiscal year 2021 that our business has been firing on all cylinders.”
– Steve Brass, WD-40; President and CEO
“Turning now to capital allocation […] First, we look at investing in the business and both organic investment and opportunistic M&A […] we remain highly selective, but are also open to investing in capabilities and acquiring the right assets to further our strategy.”
– Deidra Merriwether, W.W. Grainger; CFO & SVP
“We ended our fiscal year on a strong note as the Powell team delivered another great quarter to close out one of the best years in the company's history. The sharp recovery of our industrial end markets led to $1.4 billion of orders in fiscal 2024, by far the most we have ever recorded in a 12-month period and twice that of the prior year”
– Brett Cope, Powell Industries; President and CEO
HARBOR VIEW’S INDUSTRIAL TECH ANNUAL REPORT
2024 M&A OUTLOOK – PRIVATE EQUITY SURVEY RESULTS
HARBOR VIEW’S INDUSTRIAL TECH ANNUAL REPORT
How do you expect your strategy might change in 2024?
Due to a combination of healthy sponsor fundraising in prior years and lower deal volume in 2022 and 2023, private equity firms are employing strategies to aggressively deploy capital in 2024.
“Last year we stayed proactive on the add-on front and picked our spots on platforms. This year I’d expect we’re more aggressive with overall capital deployment and target a higher quantity of platform investments.”
In 2024, what are your expectations for debt levels as a part of transaction structure compared to 2023?
While interest rate uncertainty still exists, buyers are not planning to revolutionize deal structure. As interest rates begin to decrease and the Fed provides more guidance on the pace it intends to lower rates, buyers may change their deal structure strategy.
“[Deals will require] more financial engineering as M&A remains somewhat slow.”
What do you foresee being the largest challenge to closing deals in 2024?
Like 2023, buyers are concerned with the quality of assets coming to market. A+ assets are still earning healthy valuation multiples, but interestingly, with buyers eagerly looking to deploy capital, processes could still be competitive, even when involving lower-grade assets.
“Pent-up demand should cause a flurry of sellers to enter the market which is positive for the buyer landscape. The challenge will lie in evaluating the quality of available assets.”
Note:
In 2024, what is your expectation for valuation compared to 2023?
Since the unsustainable valuation hikes in 2021, valuations have returned to “normal”. While there is still a gap in expectations, it is not as extreme as it once was, implying that there is a generally increased likelihood that deals will get across the finish line in 2024.
“I think seller valuation expectations are still loftier than acquirers and that will be a barrier to deal flow.”
MIDDLE MARKET HIGHLIGHTS
Deals with Non-Backed Companies as Targets as a Share of all Private Equity Buyouts by Quarter HARBOR VIEW’S INDUSTRIAL TECH ANNUAL REPORT
Source: PitchBook
Non-backed companies, those without institutional funding – including founder and family-owned businesses, historically comprised a majority of US private equity investment. In 2021 the share of these deals fell to ~46 %, but there has since been a resurgence, reaching ~56% in 2023 . Private equity investors now prioritize operational improvements over financial leverage – more attainable when investing in companies that are receiving institutional capital for the first time Private equity buyers are sitting on significant dry powder (~$956 billion) and are inclined to continue pursuing non-backed targets. Founder-owned businesses are attractive, offering a fresh starting point and lower purchase price multiples.
US Private Equity Deal Count by Type by Quarter
Source: PitchBook
Add-on acquisitions have become a prominent trend in the private equity sector, maintaining a strong presence in 2023. The continued trajectory of these acquisitions reflects a strategic response by private equity buyers to the market dynamics experienced last year. Add-ons play a vital role in sustaining private equity sector momentum during periods of tight credit and market turbulence, allowing sponsors to deploy capital through smaller-scale deals. This financing is facilitated by leveraging existing credit facilities of larger platform companies. Notably, the private equity sector has experienced a shift towards buy-and-build strategies through these smaller addon deals This approach enables private equity platforms to progressively expand and enhance their market positions, allowing them to be adaptable through challenging market conditions.
KEY ECONOMIC INDICATORS
Source: U.S. Bureau of Labor Statistics
Source:
$300,000 $400,000 $500,000 $600,000 $700,000 $800,000 $900,000 $1,000,000 $1,100,000
Source: U.S. Census Bureau
Source:
INDUSTRIAL TECH PUBLIC TRADING STATISTICS
HARBOR VIEW’S INDUSTRIAL TECH SUB-SECTORS
SOLUTIONS TRADITIONAL INDUSTRIAL
• Sensors & Controls
• Data Capture & Analysis
• Specialty Equipment & Devices
• Technology Enabled Solutions
Source: PitchBook, Data as of 12/31/23
INDUSTRIAL & RELATED SERVICES
• Design & Engineering
• Facility & Site Services
• Testing, Inspection, & Certification
• Environmental Solutions
COMPARATIVE MEDIAN EBITDA MULTIPLES
• Manufacturing
• Value-Added Distribution
• Logistics
• Installation & Construction
Source: PitchBook, Data as of 12/31/23
ONE-YEAR HISTORICAL INDEX PERFORMANCE
INDUSTRIAL TECH SELECT PUBLIC TRADING STATISTICS
HARBOR VIEW’S INDUSTRIAL TECH ANNUAL REPORT
AUTOMATED SOLUTIONS
Note: Privately held companies typically trade at a discount to public companies; companies denoted with “*” have cash balances that outweigh the sum of their market capitalization and total debt
Source: PitchBook, Data as of 12/31/23
INDUSTRIAL TECH SELECT PUBLIC TRADING STATISTICS
HARBOR VIEW’S INDUSTRIAL TECH ANNUAL REPORT
INDUSTRIAL & RELATED SERVICES
Note: Privately held companies typically trade at a discount to public companies
Source: PitchBook, Data as of 12/31/23
INDUSTRIAL TECH SELECT PUBLIC TRADING STATISTICS
HARBOR VIEW’S INDUSTRIAL TECH ANNUAL REPORT
TRADITIONAL INDUSTRIALS
Note: Privately held companies typically trade at a discount to public companies
Source: PitchBook, Data as of 12/31/23
INDUSTRIAL TECH SELECT PUBLIC TRADING STATISTICS
HARBOR VIEW’S INDUSTRIAL TECH ANNUAL REPORT
CONGLOMERATES
Note: Privately held companies typically trade at a discount to public companies
Source: PitchBook, Data as of 12/31/23
INDUSTRIAL TECH SELECT M&A TRANSACTIONS
HARBOR VIEW’S INDUSTRIAL TECH ANNUAL REPORT
AUTOMATED SOLUTIONS
INDUSTRIAL & RELATED SERVICES
TRADITIONAL INDUSTRIAL SELECT M&A TRANSACTIONS
HARBOR VIEW’S INDUSTRIAL TECH ANNUAL REPORT
TRADITIONAL INDUSTRIALS
INDUSTRIAL TECH SELECT VENTURE
HARBOR VIEW’S INDUSTRIAL TECH ANNUAL REPORT
DATA CAPTURE & ANALYSIS
SENSORS & CONTROLS
TECHNOLOGY ENABLED SOLUTIONS
SPECIALTY EQUIPMENT & DEVICES
Industrial Recycling Provider
Acquired by
STRATEGIC BUYER
Acquired by White Glove Transportation & Logistics FINANCIAL BUYER
Metal Processor
Acquired by
FINANCIAL BUYER
Property Management Provider
STRATEGIC ADVISORY SERVICES
DESIGN & ENGINEERING
FACILITY & SITE SERVICES
ENVIRONMENTAL SOLUTIONS MANUFACTURING
TESTING, INSPECTION, & CERTIFICATION
Aerospace Component Testing Provider
Acquired by
STRATEGIC BUYER
Telecommunications Infrastructure Provider
Acquired by
FINANCIAL BUYER
Fluid Dynamics
Designer & Engineer
Acquired by
FINANCIAL BUYER
Solar Lighting Designer & Integrator
Acquired by
STRATEGIC BUYER
Note: Unless displayed with the Harbor View logo, the transactions documented were executed in previous roles Call
VALUE-ADDED DISTRIBUTION LOGISTICS
Light Industrial Staffing Provider
Acquired by
FINANCIAL BUYER
Wireless Tower Owner & Operator
Acquired by
STRATEGIC BUYER
CONNECT WITH HARBOR VIEW ADVISORS
Nate Shepherd MANAGING DIRECTOR
INSTALLATION & CONSTRUCTION
Acquired by Metal Fabricator FINANCIAL BUYER
Data Capture & Analysis Provider
Acquired by
STRATEGIC BUYER
Building on his more than 25 years of Investment Banking and Private Equity experience, Nate leads Harbor View’s Industrial Tech practice. In his role, Nate advises clients in the Automated Solutions, Industrial & Related Services, and Traditional Industrial sectors helping business owners navigate the company sale, acquisition, and capital raise process. Suzi Airheart Associate Shaan Patel Analyst
The material in this report is for information purposes only and is not intended to be relied upon as financial, accounting, tax, legal or other professional advice. This report does not constitute and should not be construed as soliciting or offering any investment or other transaction, identifying securities for you to purchase or offer to purchase, or recommending the acquisition or disposition of any investment Harbor view advisors does not guarantee the accuracy or reliability of any data provided from third party resources Although we endeavor to provide accurate information from third party sources, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future