May 16, 2022
In the year 2050, what will the world of industrials and manufacturing look like? Will existing players still dominate the market or will new entrants with dynamic offers win market share? A new report by Translink Corporate Finance in partnership with the Institute of Futures Research (IFR), explores four plausible futures that will pose distinctive opportunities and threats to businesses in the industrials and manufacturing sector. But according to Henrik Schrøder, Head of Translink Industrials Group and Managing Partner: Translink Denmark, the future starts today.
As well as fast forwarding decades into the future, Schrøder took a look at the state of play in the industrials sector currently. Here are some of the top trends he is seeing:
1. Prices are up: Myriad companies – large, medium- and small-sized – enjoyed record earnings in 2021. We’re also seeing private equity funds and family offices take on a more dominant role in M&A – they’re setting up new funds and seeking solid small to medium-sized businesses. These two factors have driven up the prices on robust assets and companies. The demand is likely to stay strong, but high prices risk only to drop, if more uncertainties are imposed to the market.
2. Divesting and investing: We’re seeing two opposing trends – companies are divesting underperforming subsidiaries or non-core components to concentrate on core business. They’re also undertaking acquisitions to diversify their commercial portfolios, through new products, people, technologies and services. Going forward, the industrials sector will see more revenues come from services. Sectors will operate less in siloes, boundaries will blur, and there’ll be greater cross-pollination between industries.
3. Crises have had little affect: Interestingly the pandemic, the Russian-Ukraine conflict and other major events have – so far – had little impact on M&A activity so far. In fact, 2021 was a record year for transactions – the IT and industrials sectors accounted for about 40% of all transactions worldwide. However, if the cost of capital and inflation continue to increase, we will see a drop in deals. Ukraine accounts for almost 15% of the world’s steel production, so the conflict will have a big effect on companies using steel. Businesses that can adapt their business models and find new suppliers fast may not be majorly impacted.
4. Transformative deals: We’re likely to see an increase in transformative acquisitions as companies for instance ‘buy’ the digital capabilities they need. Ecommerce will be an ongoing focus – also for companies not traditionally using this channel.
5. ESG and going green: Driven by consumer- and investor demand and new regulations, there’ll be a sustained drive for businesses to incorporate a strong ESG agenda. It’s not enough for a company to know its suppliers. It will need to know it’s suppliers’ suppliers.
6. Regulations regarding competition: There’ll be more public and governmental regulation regarding competition and, possibly, the size of companies. This might stymie large players’ continued growth prospects.
7. In-sourcing of production: Given the issues with the supply chain, the cost of freight and trade delays, we’ll probably see more production being in-sourced and optimised with robotics and digitisation.
8. It’s tough for new entrants: Entrepreneurs hoping to scale small start-ups are struggling due to the volume required to be competitive. It’s a hard environment to thrive in, but there are major opportunities for innovators who bring something special to the table.
Schrøder concludes, “Business owners need to act fast to transform their business models when this is needed and to overcome obstacles in the supply chain. They also need to move quickly when it comes to maximising M&A opportunities.”
For more information on how Translink is ideally positioned to advise companies in the industrials sector now and into the future, visit https://www.translinkcf.com/
