Industrial automation applications have been historically limited to large companies with extensive resources, but these technologies are increasingly making their way into the middle market. With rising competition from a globalized economy and enhanced focus on efficiency and output, manufacturers are increasing their adoption of automation technology to reduce costs and produce higher quality products at scale.
In addition, the ROI for automation technology has become far more accessible and tangible. Breakeven payback timelines have dramatically shortened, and automation implementation is providing visibility, flexibility, and enhanced collaboration between the factory floor and management, as well as streamlined integration between customers and suppliers.
Furthermore, the U.S. is facing a critical manufacturing skilled labor shortage of nearly two million workers over the next decade. COVID-19’s manufacturing disruption has reinforced the importance of supply chain relocation and on-shoring, and automation is primed to ease the tension between increased domestic production and long-term labor shortages.
Automation technology will see a significant ramp in the next decade—moving from a focus on hardware to an emphasis on enterprise connectivity, intelligence integration, and enablement as key drivers of adoption. In response to heightened COVID-19 demand from omnichannel and e-commerce retailers, warehouse, supply chain, and logistics management environments will increasingly require automation solutions in the short term.
In the mid- and longer-term, AI and analytics will help manufacturers gather much-needed data for enterprise planning, supply chain management, demand forecasting, and factory floor management. Manufacturers will increase the use of autonomous inspection enabled by computer vision and more flexible robotic-driven manufacturing. Augmented and virtual reality will also help optimize and enhance human operator productivity.
As automation technology has become more widely accepted and enterprises are better able to deploy it, transaction multiples have retracted from their highs of the recent past, but companies in the space continue to trade at a healthy premium to traditional manufacturing. As the market matures, financial buyers will seek cash-flowing businesses with proven commercial viability, end market specificity, and an actionable path to growth. Strategic buyers, however, will continue to pay premiums for differentiated technologies that provide competitive advantages in an environment with increasingly compressed first-mover timelines.
Middle-market companies looking to monetize can find outsized value if they are either positioned toward high-growth, high-demand end markets with a defined and focused value proposition or are able to support multiple applications.
What’s Your Why?
Over the course of my career, it has become clear that automation technology is the key enabler of manufacturing success, and I believe it is by far the most exciting and enduring trend in the production and delivery of goods and services in our lifetime. Our unique understanding and experience in the space give us the necessary insights to deliver great outcomes to our clients—my favorite part of the job.
About Firdaus Pohowalla, Managing Director, Head of Industrials
Firdaus has spent over two decades as a strategic advisor to companies—first, as a strategy consultant and then as a banker for 15 years on Wall Street with bulge bracket investment banking firms. As an investment banker, he has focused on the financing and strategic advisory of technology and manufacturing companies. Read Firdaus’s full bio here.