Article

Industrials innovation drives rebound in deals

Nick Gillott Nick Gillott

Like many markets worldwide, the UK industrials sector has been heavily impacted by the events of 2020.

Combined with the uncertainty of what was to come in a post-Brexit world, the year presented its share of challenges. Still, the sector remains cautiously optimistic.

A snapshot of our industrials deals in 2020

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Discover our key successes in the sector

For those operating in the manufacturing sector, the challenges created by coronavirus have brought into real focus the end-markets and applications that their products are ultimately serving.

Some end-markets, such as healthcare, have seen spikes in volume requirements, in some cases presenting operational challenges. Meanwhile, markets including automotive and aerospace have suffered significantly with a drop in consumer demand and, accordingly, operational closures throughout the supply chain.

This happened against the backdrop of uncertainty presented by a pending Brexit, creating a real challenge for business leaders when contemplating long-term decision making.

The impact of these uncontrollable variables has led to uncertainty around supply-chain risk, stockpiling and concern over export markets. All needing regular re-assessment while the suite of government support mechanisms, such as the Coronavirus Job Retention Scheme, continue to evolve.

Feeling positive about the future

All that said, in the face of adversity, many companies have taken the opportunity to innovate. They've utilised the UK's exceptional manufacturing capabilities to support the community and respond to the coronavirus situation. Adapting processes to deliver solutions from ventilation to sanitisers and delivering on the associated demands placed on packaging and logistics within the broader supply chain, the industry stood resolute.

In addition, the last 12 months presented an opportunity to reflect on what is core to the business and whether operational structures and processes are truly optimal.

Going forward, this will likely lead to companies evolving the business model through increased diversification and continued adoption of enhanced and emerging technologies. For example, in areas such as automation, robotics and 3D printing.

Industrials M&A

From an M&A standpoint, volumes in the industrials market in 2020 dropped significantly from the end of March as the UK went into lockdown, tracking at approximately 40% of prior-year volumes through to July1. There was some - but not a full - recovery from August with volumes returning to c.75% of the prior year.

Based on our own transactions in the current year and our conversations in the sector, as we enter 2021, we anticipate seeing the following key themes develop in the Industrials market:

Evolving corporate strategies

Corporate entities are looking to focus on their core competencies by divesting non-core assets. They hope to seek out those strategic opportunities to acquire know-how and technology, and diversify their end-markets.

The rise of private equity funds

Alongside this corporate dynamic, private equity funds have capital available to deploy. Those businesses that have proven their ability to robustly deliver through the challenges of 2020, adapt and innovate, will find themselves highly sought after.

Growing private backing

In addition to more traditional private equity capital, there are a developing number of family-office and private capital-backed industrial companies seeking to build out their portfolio of assets and hold for the long term. The increase in the number of these businesses will also provide for continued options as M&A volumes return.

A welcome relief from Brexit speculation

Reaching an agreed Brexit deal at the end of 2020 was a welcome relief for business and, although there are many short-term details to work through, the increased clarity and dilution of long-term uncertainty is a significant step forward.

Despite another period of lockdown, there remains a level of optimism as the vaccine rollout has begun, and consumers and businesses look forward in hope of an improved environment by the spring and beyond.

Based on the innovation and resilience delivered to date, with the benefit of more clarity going into 2021 and lessons learned from the first lockdown, we anticipate long-term planning to improve, enabling businesses to further adapt, stabilise, unlock growth and consequently for transaction volumes to continue to recover, underpinned by the themes outlined above.

Footnotes

1 Source: Mergermarket and Grant Thornton analysis

Credentials report
Our key successes in the sector

November 2020

LDC Managers Limited

Investment in Rhino Products Holdings Limited by LDC Managers Limited

Manufacturer of commercial vehicle accessories

November 2020

Construction Testing Solutions Limited

100% acquisition of Card Geotechnics Limited

On site and laboratory testing

October 2020

SIG Trading Limited

Acquisition of SM Roofing Supplies Limited

Supplier of roofing materials

August 2020

OnNewco Limited (Envair Technology)

Acquisition of Total Containment Solutions Limited

Fume cupboard manufacturer

July 2020

GTS Flexible Materials Group Limited

Investment by Growth Capital Partners LLP

Manufacturer of bespoke adhesives and flexible materials

April 2020

Briggs of Burton plc

Acquisition of McMillan (Coppersmiths and Fabricators) Limited

Designer and manufacturer of process plant and equipment

February 2020

Moulded Fibre Products Limited

Sale to CDL Omni-Pac Group

Sustainable packaging

January 2020

Metrol Springs Limited

Sale to Lesjöfors AB

Design and manufacture of gas springs, gas struts and motion control products

February 2021

Xaar plc

Class 1 Disposal - Sale of the Xaar plc 3D printing business

Printing

February 2021

Williams Grand Prix Engineering Limited

Partial disposal of Williams Advanced Engineering to EMK Capital

Engineering