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Advisors, Private Equity

Manufacturing in Q1 2016: Robotics and 3D Printing Bright Spots in a Lackluster Quarter

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M&A activity in the manufacturing sector is projected to be significantly down from previous years, with approximately 1,800 deals projected to close this year vs. 2,000 last year, according to SDR Ventures’ Q1 2016 report. Invested capital is also significantly down, projected at approximately $80 billion vs. more than $160 billion last year. The number of transactions in the space this quarter (452) is the lowest since Q1 2013 (437).

However, there are bright spots. Offshoring has been an increasing threat to the American manufacturing industry. But recently, according to SDR Ventures’ report, “with the U.S. dollar holding strong, continued volatility in foreign economies, and labor costs rising globally, many companies are reshoring their facilities back to the U.S.” Foreign companies are also looking to the U.S. – SDR notes that Honda Motor Company is opening a production facility in Indiana, moving some of their operations from Mexico.

Transaction Highlights by Segment - 427

  • Medical Equipment saw the largest number of transactions in Q1 2016. According to SDR, one driver behind the surge is the two-year moratorium on the medical device sales tax, which went into effect at the beginning of the year. SDR reports that players are capitalizing on this moratorium “by acquiring companies with new technology in growing niche segments.”
  • Machinery & Equipment also did well this quarter, increasing 8% from Q4 2015 – “a significant rebound from a notable decrease in the prior quarter” in large part caused by declining oil prices.

Thirty-eight percent of transactions were strategic and 62% financial.

Two specific areas undergoing expansion are 3D printing (also known as additive manufacturing) and robotics, according to the report.

3D Printing  

Fortune predicted at the end of last year that 2016 could mark 3D printing’s big break, as costs go down and consumers increasingly demand personalized products.

“Major industry players are buying into additive manufacturing’s benefits as the technology’s capabilities have increased dramatically, become more affordable, and demonstrated real productive efficiencies,” reports SDR. The technology has a wide range of applications, including medical device manufacturing and aircraft manufacturing (according to SDR Ventures, GE Aviation uses 3D printing to produce parts for a top-selling engine).    

Robotics

Robotics is also poised for growth throughout the year, as companies increasingly recognize the benefits of automating production facilities – and “as the necessary capital expenditures have dramatically reduced for small and medium-sized businesses,” according to SDR. Interestingly, SDR notes that some automotive manufacturers like Vickers Engineering “have been able to automate their facilities without having a reduction in personnel,” replacing assembly line staff with technology specialists and operators. 

Read the full report from SDR Ventures here >

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