Boston, MA—Capstone Headwaters released its Precision Manufacturing Mergers & Acquisitions (M&A) Update Sept. 17, reporting that transaction activity in the precision manufacturing industry has remained strong despite the pandemic. Through August, 81 transactions were announced or closed compared to 64 through the same period in 2019—a 26.5 percent increase year-over-year. The importance of end market exposure has been greatly exacerbated by COVID-19, with the automotive, energy, and oil & gas industries all facing dampened demand. Manufacturers that serve resilient sectors in select areas of medical, electronics, consumer goods, and aerospace & defense, as well as those that offer specialized, value-added services have been attractive targets.
“The sectors that are in greatest demand from an M&A standpoint are those that offer the greatest revenue visibility and today they include businesses supporting major defense programs or the manufacturing of medical devices,” according to Managing Director Ted Polk.
Managing Director David Bench added, “Private equity sponsors are well positioned to assume a greater role in precision machining M&A in the near- and mid-term by tapping into over $1 trillion in committed capital. We expect continued reshoring of manufacturing and supply chain localization will drive both corporate buyers and sponsor-backed platforms to be very active in M&A in 2021.”
Private equity (PE) buyers drove almost 60 percent of M&A activity in the industry year-to-date, attracted to its contract-driven recurring revenue model and high level of predictably. The industry is also highly fragmented with no major manufacturers holding a significant share of the market, which provides an opportunity for PE firms to deploy a buy-and-build strategy. According to Capstone’s interview with Tecum Capital, “key investment criteria for firms seeking add-ons in the space include scalable business profiles and a track record for operational excellence—often evidenced by the target’s deep understanding of its manufacturing timelines and CapEx (capital expenditure).”