Graham Carberry highlights how the developments in materials, computing and communications that underlie the new manufacturing revolution are impacting sector M&A.
Since the term Industrie 4.0 was first coined in Germany in 2011 to acknowledge the significant number of new development in science, materials, manufacturing processes and sensors that greater computing power has unlocked in the last few years there has been a lot of noise. However, it is not always easy to see what this means on the ground for businesses other than the giants of industrial technology such as Siemens. It is harder still to evaluate the implications for M&A, but we are being asked about this increasingly by clients so perhaps it is useful to give a brief overview of some of the key trends as pertain to manufacturing.
- Additive manufacturing has actually been around for some time but primarily in use with carbon or plastic for prototyping. More recently we have seen it being utilised in mainstream manufacturing within medical and aerospace, as it has been adapted to metals. Its major advantages are that it utilises far less of the base material, which can be 60% of the cost of manufacture in some applications. It also lends itself well to short run or single item manufacture, however it is still slow and approved applications are limited. That will change.
- Robotics has also been in use in high output manufacturing for decades. The change now is that robots can be set up to learn in real time from the cloud or directly from the substrate on which they are working through tagging of the component. The manufacturing efficiencies this will allow do not need explaining.
- Materials. Graphene is actually new but it is still very expensive. Processes are being developed to change that and as and when that happens the potential of this super-strong, super-light material is enormous. But Graphene is a fraction of the materials story. There are new developments in thermo-setting plastics, non-woven textiles and even in paper that will allow us to substantially reduce both manufacturing waste and significantly increase recycling. Combined with asset tracking technology we are close to building meaningful circular economies.
Use of tagging and cloud to accelerate supply chains is already established and supplier integration with major OEMs is increasingly the price of entry as a Tier I. The change we see here is that the OEMs are increasingly pushing tracking and systems integration further down the supply chain. This needs to be seen as an opportunity not just a threat for UK suppliers as we are well placed to meet these requirements.
The Impact on M&A
As with any new technology large corporates are already looking to take leadership either through organic R&D investment, where existing skill sets allow, or increasingly through acquisition, for example Caterpillar's acquisition last year of remote asset tracking software provider M2M Data Corporation.
While the technologies under the Industry 4.0 umbrella are diverse they are unified from an M&A perspective, by the significant scarcity of both business of scale within the technology areas and businesses within other manufacturing sectors that have successfully adopted them on a commercial basis. In part, the latter has been caused by the required capital expenditure and skills development involved and where we have seen adoption it has often been driven by the OEMs in supply chains such as Automotive demanding it.
However, the commercial potential of embracing these opportunities in substantial and payback periods on investment are falling rapidly. More importantly, we are already seeing strategic buyers pay measurable premia for companies with working IoT-enabled production or services or with a track record of successful adoption of new materials technology. Our expectation is that, in future, businesses with low or zero adoption will be harder to sell to corporates who are themselves further up the technology curve. If you are likely to consider a sale of your business beyond the next few years, making this investment is therefore potentially important to protect your exit opportunity.