Industrial Tech Sector poised for recovery and growth amidst uncertainties
16 Jul 2023
Discover in our sector report how exogenous uncertainties have impacted Industrial Tech companies across relevant segments and which positive long-term trends will spur the industry. Our report provides deep insights into our focus verticals and offers an outlook regarding M&A activity in the sector.
For busy readers in a nutshell:
Megatrends and crisis reinforce digitalization and automation in Industrial Tech
Macroeconomic and geopolitical uncertainties, such as supply chain bottlenecks, inflationary raw material and energy price developments and continued geopolitical tensions, have constrained the sector. Megatrends, incl. re-shoring of production capacities, establishing alternative sourcing strategies, digitalization and automation along the entire value chain, remain intact or are re-enforced by the different crises.
Industrial Technology index outperforms, back to nearly all-time highs
Carlsquare’s composed Industrial Technology index has outperformed other industrial indices: Selected Industrial Technology verticals are up around 9% YTD, outperforming the S&P 500 Industrials by c. 6%. This year’s share price performance recovery has led to trading levels close to all-time highs and well above pre COVID-19 levels.
Muted M&A activity expected to increase with market recovery
The industrials M&A activity has been muted since Q3 2022 following the perceptible economic impact of the Ukrainian war. Financial investors have been limited by restrictive financing conditions. Recent landmark transactions have mostly been led by strategic acquirers. We expect the return to a higher deal activity, >300 deals per quarter globally, as a sizeable backlog of industrial assets is likely to come to the market over the next 12 to 18 months.
Private market valuations lag behind public markets, waiting for financing conditions to improve
Private transaction multiples in the small to mid market have come down by more than two turns from their highs in 2021. This is in a notable contrast to the publicly listed large cap peers trading for the vast majority at double digit 2023E EBITDA multiples. We expect private market valuations will follow public markets once financing conditions will enhance.
Supply chain challenges diminishing, Industrial Tech businesses set to regain strengths
The supply chain challenges are diminishing and price levels are stabilizing. Destocking along the supply chain has commenced and will continue until the end of the year. The book to bill ratios will accelerate from a continued high level of order books. An improving operating environment paired with a shifted focus on profitability and substantiated business models will propel Industrial Technology businesses to regained strengths and investors’ appeal.