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Shift Away From Diversification

A Shift from Diversification to Highly Targeted Products with Proprietery Technology and Brand Equity

Apache, Inc. was sold to Motion Industries

Livingstone’s global Industrials practice completed 50 transactions over the previous 24 months, with several deals exhibiting a trend of global strategic buyers targeting middle-market industrial companies with proprietary products, technology, brand equity, and intellectual property.

Over the previous five years, strategic buyers have shifted their acquisition focus from diversification opportunities to proprietary niche industrial companies to fill product and technology gaps within a strategic buyer’s core business portfolio.

Benefiting from well capitalized balance sheets, abundant cash reserves and elevated stock prices, strategic buyers aggressively targeted niche industrial companies to further strengthen market positions within existing core lines of business.

Transaction volume in the industrials space remained strong in 2017 with 2,215 middle-market deals (defined as < $500 million of enterprise value) completed globally, representing 0.8% change vs. 2016.

Valuation multiples remained robust in the industrial sector against a backdrop of deal demand outpacing supply for quality assets. The median enterprise value to EBITDA multiples reached 9.5 times, representing a 23% increase compared to deal valuations in 2016.

Three acquisitions of Livingstone middle-market industrial clients acquired by global strategic acquirers highlight this trend in the industrial M&A market:

In 2018, Livingstone expects the M&A environment to remain highly receptive to well-positioned industrial technology businesses. Corporations and private equity firms foresee an acceleration of M&A activity in 2018—both in the number of deals and size of those transactions.

Technology acquisition is considered one of the top drivers of M&A pursuits, along with expanding customer bases in existing markets, and adding to products or services while a curated selection of transactions is not a statistically significant sample size to reflect the broader industrial M&A market, Livingstone’s market intelligence gathered from transacting with global strategic buyers across the US, Europe, and Asia indicates a consistent focus on acquiring niche product lines, proprietary technology and intellectual property, and singular end-market exposure.

In particular, Livingstone’s global Industrial team is seeing this trend with strategic buyers targeting acquisitions with dedicated exposure in specific end markets, including aerospace and defense, power generation, medtech device components, and industrial technology companies. Middle-market companies with product sets, technology, and services dedicated to the aforementioned markets are commanding premium multiples in sales processes from strategic buyers and private equity investors.

For private business owners with diversified end-market exposure (i.e., 50% auto, 25% aerospace, 25% general industrial), this should not necessarily be viewed as a troubling trend. On the contrary, running your business with diversified end-market exposure, and an underlying customer base, mitigates your overall risk profile. However, when the time comes to sell, companies dedicated to specific products and customers within singular growing end markets makes the buy decision easier for strategic buyers.

What These Trends Mean for Business Owners

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10 to Know

Industry trends owners should know

Our Team

Livingstone is strategically positioned in Beijing, Chicago, Los Angeles, London, Madrid, Dusseldorf and Stockholm, and is a long-standing leader in cross-border and domestic M&A for the industrials sector, with over 275 successfully completed transactions.

Our Global Industrials Group provides strategic advice and seamless transaction execution to private business owners, financial sponsors, and major corporations across Europe, North America and Asia.