Industrial Tech Outlook: Harbor View's Q2 2023 Report

INDUSTRIAL TECH SUMMARY & OUTLOOK

M&A TRENDS

Despite the Federal Reserve's tightening measures of 500 basis points over the past 15 months, June inflation data showed a significant cooling off, providing more encouraging signs and increasing the possibility that the Federal Reserve may cease raising interest rates after its July meeting (1). The Consumer Price Index (CPI) rose by 3% through June, a fraction of its peak of 9% in the summer of 2022 (2). This unexpected slowdown in inflation has been well received, offering relief to consumers and garnering a positive market response; however, policymakers remain cautious, wary of potential lingering effects and uncertain if the moderation is sustainable. As a result of the continued unpredictability, nearly all major deal market metrics were down in the first half of 2023.

The outlook for the global M&A market in the second half of 2023 is promising, driven by developed adaptability to current market conditions. Valuation expectations among sellers and buyers are expected to align, potentially increasing the supply of assets for sale. Financing, although more expensive than a year ago, remains accessible. The upturn in public equity markets and a growing pipeline of backlogged deals are contributing factors to the improved sentiment.

Strong and resilient businesses will remain highly sought after by buyers, while the supply of other assets for sale may increase as sellers and buyers align their valuation expectations. Sellers may also take advantage of the limited availability of desirable targets in the market.

INDUSTRY COMMENTARY

“The manufacturing economy is positioned for whatever happens in the future whether it’s growth or not. I’d classify it as a soft landing – revenue growth is strong; exports have been good and head count is generally stable. Although there’s uncertainty, [manufacturers] are not letting people go…The supply chain is poised for growth once demand picks up, said Fiore. “Material hasn’t flowed this well in many years and lead times have declined. The problem is no new orders and a low backlog. As soon as new orders pick up backlog is likely to expand as well.”

– Tim Fiore, Institute for Supply Management Manufacturing Business Survey Committee Chair, 5/5/2023

“We are finding new ways of using AI and machine learning algorithms to really utilize our capacity and the fleet assets we have, all to offer better solutions to our customer and to reduce carbon dioxide emissions”

– Ingo Paas, Green Cargo CIO, 6/26/2023

“As supply chains have normalized, customers are increasing their focus on achieving competitive prices, just as we are doing with our suppliers. Overall, we would describe the environment, both on the demand and the pricing fronts, as leveling.”

– Erik Gershwind, MSC CEO, 6/30/2023

INSIGHTS ELECTRIFICATION OF THE AUTOMOBILE INDUSTRY

The widespread and rapid adoption of automobile electrification has exceeded expectations. The global electric vehicle (EV) market has become increasingly competitive, with numerous manufacturers, both large and small, vying for market share.

For over 70 years, the U.S. automotive market was dominated by the "Big Three" manufacturers: General Motors, Ford, and Daimler Chrysler. However, the landscape is now evolving, with intense competition emerging both within the U.S. and in the leading EV markets of Asia-Pacific and Europe.

EV companies encounter a significant hurdle in the form of expensive manufacturing facilities. To thrive in the evolving market, these companies must navigate and overcome various manufacturing obstacles related to cost, scalability, and efficiency. Embracing contract manufacturing has emerged as a vital strategy for EV companies to tackle these challenges and maintain competitiveness in the swiftly changing landscape.

Contract manufacturing provides advantages for both traditional automobile original equipment manufacturers (OEMs) transitioning to EVs and early-stage OEMs. It offers cost savings, flexibility, and the ability to avoid capital expenditures associated with building their own factories. However, ensuring quality and safeguarding intellectual property are important considerations.

EV sales are expected to achieve yet another milestone this year, with a significant surge that will propel their market share to nearly one-fifth of the overall automotive industry. This remarkable growth is driving a substantial transformation within the auto sector, impacting various aspects, including the energy industry, notably the oil sector.

Electric vehicles are disrupting the long-standing dominance of the internal combustion engine. By 2030, it is projected that electric vehicles will eliminate the requirement of a minimum of 5 million barrels of oil per day (1). This transformation extends beyond cars, as electric buses and trucks are expected to follow suit. As competition, facility challenges, and contract manufacturing continues to be explored, the trend towards electric vehicle adoption is expected to persist in the near term, marking a significant shift in the automotive industry.

NOTABLE ELECTRIC VEHICLE INVESTMENTS

KEY ECONOMIC INDICATORS

HARBOR VIEW’S INDUSTRIAL TECH Q2 2023 REPORT

INDUSTRIAL PRODUCTION INDEX

UNEMPLOYMENT RATE

Source: Board of Governors of the Federal Reserve System

CONSUMER PRICE INDEX

Source: U.S. Bureau of Labor Statistics

FED FUNDS EFFECTIVE RATE

Source: U.S. Bureau of Labor Statistics

TOTAL CONSTRUCTION SPENDING (NON-RESIDENTIAL)

Source: Board of Governors of the Federal Reserve System

TOTAL CONSTRUCTION SPENDING (RESIDENTIAL)

Source: U.S. Census Bureau

Source: U.S. Census Bureau

INDUSTRIAL TECH PUBLIC MARKETS

ONE-YEAR HISTORICAL INDEX PERFORMANCE

INDUSTRIAL TECH PUBLIC TRADING STATISTICS

Note: Privately held companies typically trade at a discount to public companies

Source: PitchBook

INDUSTRIAL TECH PUBLIC TRADING STATISTICS

Note: Privately held companies typically trade at a discount to public companies

Source: PitchBook

INDUSTRIAL TECH M&A SUMMARY

Note: Deal count represents transactions completed in the U.S. & Canada; historical values retrospectively adjusted per source

INDUSTRIAL TECH SELECT M&A TRANSACTIONS HARBOR VIEW’S INDUSTRIAL

TECH Q2 2023 REPORT

AUTOMATED SOLUTIONS

INDUSTRIAL & RELATED SERVICES

Source: PitchBook

TRADITIONAL INDUSTRIAL SELECT M&A TRANSACTIONS

HARBOR VIEW’S INDUSTRIAL TECH Q2 2023 REPORT

TRADITIONAL INDUSTRIAL

Source: PitchBook

INDUSTRIAL TECH FINANCING TRANSACTIONS

INDUSTRIAL TECH VENTURE CAPITAL ACTIVITY

EARLY-STAGE VENTURE CAPITAL

LATE-STAGE VENTURE CAPITAL

*Indicates transaction is announced / in progress

Source: PitchBook

INDUSTRIAL TECH EXPERTISE

BROAD & DEEP INDUSTRIAL TECH INDUSTRY EXPERTISE

Recycling Provider Aerospace Component Testing Provider

Solar Lighting Designer & Integrator

Note: Unless displayed with the Harbor View logo, the transactions documented were executed in previous roles

CONNECT WITH HARBOR VIEW ADVISORS

Nate Shepherd

MANAGING DIRECTOR

Building on his more than 25 years of Investment Banking and Private Equity experience, Nate leads Harbor View’s Industrial Tech practice. In his role, Nate advises clients in the Automated Solutions, Industrial & Related Services, and Traditional Industrial sectors helping business owners navigate the company sale, acquisition, and capital raise process.

Suzi Airheart Associate Shaan Patel Analyst

The material in this report is for information purposes only and is not intended to be relied upon as financial, accounting, tax, legal or other professional advice. This report does not constitute and should not be construed as soliciting or offering any investment or other transaction, identifying securities for you to purchase or offer to purchase, or recommending the acquisition or disposition of any investment Harbor view advisors does not guarantee the accuracy or reliability of any data provided from third party resources

Although we endeavor to provide accurate information from third party sources, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future