Industrial Tech – New Solutions to Old Challenges Drive Premium Valuations

Investment Banking, Industrial Tech

February 2021 — By Nate Shepherd


2021 M&A Outlook for Industrial Tech - The innovative and transformative power of Industrial Tech continues to capture the attention of investors and acquirers. As such, we expect this year to be very active on the M&A front. Valuations are high and reflect both ongoing consolidation and a strong appetite for innovation.  Overall, Industrial Tech is trading at a 16% premium to the ten year mean for the sector, and key niche markets like Test & Measurement are trading 35% above trendline. 

Forces driving these premiums include:

  • Necessity of scale 
  • Immediate need for solutions to labor challenges
  • Desire for revenue innovations 

In 2020, the technology ecosystem surrounding the industrial space experienced tremendous M&A activity with more than 3,000 transactions worth over $500bn in value. In this note, we examine key drivers and transactions in the Industrial Tech space in order to better understand investor appetites. We also take a look at the current transaction landscape to see how these themes are playing out in real time. In particular, we focus on new developments in Automated Solutions - a subsector of Industrial Tech trading well above its 10-year EV/EBITDA trend line, as depicted below:  

Key Valuation Drivers

In the world of Automated Solutions, we see 3 common drivers:

  1. Improved scale, efficiencies, productivity, quality - New developments in automation technology enable manufacturers, distributors, supply chain managers, and select service providers alike to better scale, improve efficiencies, increase productivity, and optimize quality and quality control.
  2. Addressed labor challenges, compliance, and employee safety - With the industrial sector facing ever increasing labor-related challenges, automation provides select relief from labor recruitment and retention challenges, employee costs and training requirements.  These same automated solutions can also provide for increased workplace safety and an improved workplace environment.
  3. New opportunities for revenue generation - As automated solutions are adopted, new revenue opportunities emerge. Data capture and analytical tools, for example, can drive new data subscription, analysis, and reporting offerings, and in select instances, even repair and predictive maintenance service offerings.

Recent Funding Points to Increased M&A Activity

A look at recent capital raises in Industrial Tech further highlights the growing interest in the space. We have seen a wave of new funding flow into the sector, which will only accelerate M&A activity, as these newly-funded companies grow to scale. For example, Locus Robotics (“Locus”) – a Massachusetts-based producer of collaborative mobile robots used to automate existing warehouse operations - recently announced the completion of a $150M capital raise supporting a post-money valuation of $1bn.  The company’s Series E capital raise was co-led by Tiger Global Management and Bond Capital.

Locus’ robots, using AI and machine learning technologies, deliver full bins, picked and filled by warehouse employees, to packing/shipping locations within the same facility. The company’s strengths highlight the broad sector themes outlined above: improved efficiencies, productivity, employee safety and workplace environment. With little reconfiguration of a customer’s existing warehouse, employee walks are reduced by 80%, worker bin fill rates increase 2x-3x, and facilities deliver more than twice the volume in the same footprint. Digital connectivity drives greater transparency and data-driven decision-making processes, both internally and throughout the customer’s supply chain. External challenges, including accelerated online demand for increased orders and next-day delivery, are more effectively addressed.  Other trends, including labor shortage challenges and increased warehouse demand, are better managed.

And it doesn’t start and stop with Locus. In 2020, Germany-based Magazino completed a $25M Series B capital raise. The company is a manufacturer and distributor of storage and dispensing robotic machines. In 2019, California-based Fetch Robotics completed a $46M venture raise led by Fort Ross Ventures. The company is a developer of autonomous mobile robots, material handling and data collection systems.

Key Takeaways 

Industrial Tech as a whole is trading at a premium reflective of upbeat investor sentiment. Looking at the Automated Solutions sector specifically, we can see why investors are excited. The past three years of M&A activity sets the stage for the growth within Warehouse Operations Automated Solutions, and for the Automated Solutions sector in general. We expect Industrial Tech to continue to attract heightened M&A attention for years to come.

Elevate Your M&A Strategy

Nate Shepherd, an Industry Veteran of nearly 25 years, leads our Industrial Tech practice. His expertise stems from a combination of Investment Banking and Private Equity experience while working with middle market companies across Industrial Technology and Services. If you’re considering a potential strategic alternative for your company – connect with us at Harbor View. Our investment banking services help companies get the results they deserve, guiding them step-by-step through all stages of a transaction.

 

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DISCLAIMER This presentation is intended for information and discussion purposes only and does not constitute legal or professional investment advice. Statements of fact and opinions expressed are those of the participants individually and, unless expressly stated to the contrary, are not the opinion or position of Harbor View Advisors, LLC (“HVA”). The information in this presentation was compiled from sources believed to be reliable for informational purposes only. HVA does not endorse or approve, and assumes no responsibility for, the content, accuracy or completeness of the information presented.