Perspectives

Dave Kakarenka - Managing Director, Balmoral Advisors

Dave Kakareka

Managing Director

Dave Kakareka

Managing Director

Last week, Chris Cerimele and  I attended the Opus Connect Manufacturing and Industrials Conference, which showcased dynamic speakers who provided insightful perspectives on the current state and future of the manufacturing and industrials sector. Here’s a summary of key takeaways:

Capital Markets and M&A

The sentiment around Capital Markets and M&A is cautiously optimistic, with expectations of growth in the current year, especially given the low base of comparison from 2023.

  • A general optimism for M&A growth this year, tempered by the low activity levels in 2023.
  • The reshoring or nearshoring trend is gaining momentum due to global geopolitical tensions, making domestic manufacturing more appealing.
  • Manufacturing company valuations still trail behind those in technology and healthcare, causing some owners to hesitate about entering the market.

Transformative Trends

There are several transformative trends shaping the industry, emphasizing diversification and technological integration.

  • The political climate is pushing companies to diversify their supply chain sources.
  • Mexico has risen as the #1 importer to the US, with Chinese firms establishing operations there to navigate logistics and conceal supplier ownership—a fact often uncovered during due diligence.
  • Reshoring to the US is leading to a 10-20% increase in the cost of goods. Despite these increases, companies are striving to mitigate supply chain risks and prioritize long-term stability.
  • Significant investments are being made in the US to develop alternative sources for critical inputs like semiconductors, solar panels, and battery technology.
  • AI’s role in manufacturing is becoming more pronounced, enhancing efficiencies in existing processes.

Alternative Approaches for M&A

As we enter 2024, we are noticing innovative strategies in the M&A space, particularly in financing and deal structuring.

  • Commercial banks are offering more competitive rates, displacing some private credit positions.
  • Private credit is becoming cheaper, increasing its competitiveness.
  • Companies are uncovering hidden values in their balance sheets to boost liquidity.
  • There remains a disconnect between seller and buyer value expectations, with sponsors finding creative solutions to bridge these gaps and ensure mutually beneficial outcomes post-closing.

Feel free to reach out to me to continue the conversations. Let’s share insights, discuss opportunities, and collaborate on shaping the future of our industry together.

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