The industrial manufacturing and machinery sector provides companies with the equipment they require to sell into the industrial space including heavy electrical equipment, components, filtration and separation equipment, compressors, flow control, valves, fluid and material handling equipment as well as a wide variety of other equipment. The sector is a supplier to other industries, such as general manufacturing, energy, transportation, transmission and distribution, rental, metals and mining, and engineering and construction. Companies in the sector need to be aware of changes in their customer business’, especially suppliers and sub-suppliers to the energy industry who must adapt to falling demand in the conventional energy industry as companies shift their focus to the energy transition. Competition in the industry can be fierce both domestically and internationally with developing countries with lower cost bases increasingly targeting higher value industrial products and machinery. Companies are being forced to reconsider their supply chains and distribution networks and, in many cases, shorten them. After years of outsourcing, some customers are insourcing and rebuilding vertical supply chains. At the same time, passing increased costs on to customers has been difficult. Industrial equipment and products are increasingly priced as commodities. Skilled labor shortages have led to higher wages, which, when coupled with slowing to flat productivity gains, has squeezed margins.
Many industrial manufacturing and machinery companies have neglected what they consider non-core activities such as procurement and logistics. Companies have neglected to develop a strong service (including aftermarket) offering which would provide insulation from reduced orders in a poor economic environment. While the industry as a whole has embraced automation, adoption of true smart manufacturing technologies such as additive manufacturing, robotics, and digital manufacturing are still in their early stages.
The industrial manufacturing and machinery sector has seen healthy M&A activity in recent years and, subject to global economic conditions, M&A activity should remain robust. US manufacturing companies should continue to divest non-core businesses to optimize their product portfolios and to allow them to reinvest in other products and focus on core business segments. Mega deals involving public to public transactions, strategic acquisitions by both US and international public companies, and continued strong interest from private equity buyers should continue.
Companies in the industrial manufacturing and machinery sector need to prepare themselves for changes in the business environment, optimize supply chains, strategically grow revenue with a focus on profitability, embrace technology, consider divesting non-core businesses and grow through strategic acquisitions.