Industrial
Market Insight
Most manufacturers in the United States have enjoyed success over the past few years with solid growth in revenues and profitability. This pattern seems to be softening, however, due to changes in the market. As a result, we are concerned about the future ability to hold profits in many segments, given slowing demand in most U.S. end markets.
U.S. manufacturers are also getting squeezed by the higher cost of raw materials and inputs. This is largely due to oil prices, which drive many raw material prices. The dollar’s decrease has exacerbated the situation because most of the raw materials are imported. It’s also hard for companies to raise prices – or pass increasing costs through – in the U.S. market right now.
One bright spot: U.S. manufacturers have become more competitive in European and Asian markets because of the low U.S. dollar.
Trends to Watch
- We believe the low U.S. dollar represents a structural change; as a result, private manufacturing companies will need a strategy to deal with this. That means putting in place sophisticated hedging systems to stabilize input / raw material costs.
- Many U.S. manufacturing companies are also going on the offensive in export markets to take advantage of the low U.S. dollar. We are seeing a number of companies with limited export revenues gain significant success by exporting products to Europe and Asia.
- Manufacturing companies will have to increase wages and benefits to remain competitive because management talent and quality labor remains very tight in this sector.
Financing the Future
Manufacturing companies exploring a sale should focus on foreign buyers in order to ensure maximum value for their business. We saw an incredible pick up in both interest and valuations among foreign buyers in the last half of 2007, and we believe these buyers will be even more active and aggressive in 2008.