In today's competitive environment, manufacturing businesses continue to be pressured by a variety of challenges. Everything from supply chain issues, escalating day-to-day operational costs, labor shortages–and even climate change and a turbulent geo-political climate–have senior executives on heightened alert concerning the health of their organizations. And many are turning to an “old new” technology to deal with these short- and long-term business issues: automation. While many can debate the origins of the term, it really came into the vernacular in the mid-1940s in the automobile industry and its mechanized production techniques.
Fast forward to today, and automation–including robotics, predictive analytics, machine learning and artificial intelligence (AI)–is providing companies with previously difficult-to-achieve solutions for a vast range of business-focused challenges. But what about M&A? Is it impacting this industry? We believe it is emphatic “yes!” As companies seek to gain a competitive advantage over others in their particular business segment, they are embracing automation in an ever-increasing fashion. Gone are the days when the value of a company was assessed solely based on its workforce or revenue. Today, technological capabilities, particularly in automation, are a significant factor in a company's valuation. One example I like to use is cloud computing and its partnership with machine learning.
By enabling the manipulation of very large databases, this connection has blazed a new trail on the M&A landscape. As we move forward, the tactical and strategic benefits will only increase. We are already seeing the effect of several facets of automation I referenced earlier are having on manufacturing M&A–from AI and advanced robotics to aligning automation with rising environmental sustainability goals. These are helping to advance data capture and interrogation, financial and strategy diagnostics and ecosystem mapping, among others. These trends are not only shaping the way businesses operate but also influencing the strategies for buying and selling within the sector.
Additionally, other targeted and evolving game-changers in the manufacturing automation environment:
- Such technologies as real-time equipment monitoring are providing invaluable data on operational efficiencies
- Machine learning algorithms are being used to predict maintenance needs, thus reducing downtime.
- Automated Guided Vehicles (AG) technology is revolutionizing material handling and intra-logistics.
The successful adaption of automation improves the company’s bottom line and, importantly, increases its appeal to prospective buyers or investors. Automation also enhances scalability and serves to “future-proof” operations, two extremely critical aspects in the M&A world. Other aspects automation will have on manufacturing M&A:
- Deal sourcing could easily be made more efficient by developing databases that can deeply cull data about sound potential targets for buyers
- As technology becomes more mature, we might see such capabilities deeper and more thorough background checks on owners and management–perhaps even a type of behavioral analysis
- Other parts of the deal process that could be affected by automation include strategy development, integration management and sale preparation
The trend toward increased automation will only become more substantial. When looking at the past four or five decades, it is amazing to review how the industry has not only changed–but has progressed. Nonetheless, it is important to remember that competitiveness and the desire to be “number-one” fuels the industry. Curiosity and a real need for improved processes is how automation began. Maintaining and moving forward that inspiration is how we will continue to drive our industry.
Recapping other factors, supply chain disruptions and the related inflation will most likely propel at least some levels of vertical consolidation. Issues around sustainability and other environmental, social and governance (ESG) factors are also an increasing M&A theme as most boards, in efforts to withstand and address scrutiny, will evolve and reshape their portfolios. At the end of the day, we see the balance of this year–and at least into 2025–moderate to significant manufacturing M&A activity. Companies that can successfully navigate these complexities and capitalize on M&A opportunities are likely to emerge as winners in the years ahead.