Global Manufacturing Industry Report

The manufacturing industry is valued at hundreds of billions of dollars and is on pace to see continued growth rates thanks to market trends that include digital technologies, sustainable manufacturing practices, and a focus on workforce technical expertise.

Key Market Trends

Digital transformation is transforming the manufacturing sector as more companies are embracing technologies that include:

• The Internet of Things (IoT)
• Enterprise-wide artificial intelligence (AI) strategies for deep insights into production processes and data-driven decision-making
• Automation to boost productivity, reduce human error, lower operational costs, and maintain competitiveness
• Smart Manufacturing
• Industry 4.0 principles allow for real-time data collection, predictive maintenance, labor shortage solutions, and improved quality control
• Industry 5.0 strategies to incorporate robots and machines to work alongside people for added resilience

Predictive maintenance and predictive resolution are also evolving areas of manufacturing technology. Predictive maintenance uses data analytics to find anomalies in equipment performance and determine the root cause. Predictive resolution offers technicians insights on how to resolve these issues with improved certainty. Recent advancements in artificial intelligence, machine learning, and natural language processing (NLP) have made it much easier for manufacturers to gather data from documents such as PDFs, Word documents, Excel files, and others to convert them into usable formats for predictive engines.

Sustainability has also emerged as a key driver of profitability for manufacturers as they weigh short-term costs alongside long-term resilience, the ability to meet regulatory demands, and efforts to integrate environmental responsibility into their strategic missions. More manufacturers are adopting eco-friendly practices and trying to minimize their environmental impacts, which appeal to environmentally aware consumers and help businesses maintain compliance standards. These efforts include the reduction of energy use, the recycling of materials, and the sourcing of sustainable raw materials. This means that renewable energy and energy-efficient equipment are being implemented for factory operations.

The manufacturing workforce is also being transformed as the industry moves towards automation and digital integration. There is a demand for skilled labor and technical expertise for the operation of complicated machinery, management of digital production processes, and analysis of data. This is also resulting in more focus on workforce training and development. Manufacturing companies are teaming up with educational institutions to cultivate skilled talent and investing in upskilling and reskilling practices.

Building resilient supply chains is still an important priority for manufacturing companies in a post-COVID-pandemic world. Manufacturers have learned that agility is crucial and that they must prioritize strategies that diversify suppliers and offer solid contingency plans. The companies that are better prepared for any scenario will be more resilient in the face of adversity than those that are not. Staying focused on agility will aid in reducing delays, maintaining profits, and keeping key customer relationships intact. Even though the pandemic is in the past, there will always be global risks that can impact supply chain flow, such as more frequent severe weather disasters, trade wars, and other geopolitical tensions.

Some manufacturers are opting to eliminate middlemen by acquiring their own logistics companies or creating their own logistics operations in-house. These strategies allow for greater supply chain visibility, better quality control, lower shipping costs, and reduced time constraints thanks to more streamlined logistics networks.

Manufacturers are also replacing traditional multi-tiered channel sales models with direct-to-consumer models. This approach gives source manufacturers more control over their brand and pricing, enabling them to develop stronger relationships with their original equipment manufacturer customers. More manufacturing companies are adopting this model and other ways to innovate their business models, such as investing in new technologies and building redundancies to become more resilient.

More manufacturing companies are turning to outsourced manufacturing in order to cut operating costs and increase focus on core competencies. Reshoring, also known as near-shoring or local sourcing, has also become more commonplace. It is bringing imported goods or materials back to domestic production. Reshoring can improve manufacturing in a crisis that leads to supply chain shortages and production issues. There has also been a rise in port congestion and high shipping rates, and reshoring helps to mitigate the impact of these problems.

Bolstering cybersecurity in manufacturing operations has also become a key priority.

Strong cybersecurity practices have become critical as manufacturers need to safeguard both their vulnerable information technology and operational technology systems against today’s increasing threats.

M&A

M&A activity in the manufacturing sector continues to rebound as companies pursue acquisitions to improve supply chain control and adopt advanced technologies. Tech transformation, post-globalization, and changing profit pools are all factors motivating companies to consider M&A strategies in various forms. From an economic perspective, the most successful companies will employ a more aggressive approach to value creation. Companies need to be actively incorporating generative AI to be high-value M&A targets poised for success.

Focus has become very important to stakeholders and investors as manufacturing companies of all sizes are honing in on what their priorities should be and shifting strategies to achieve them. As business models are reevaluated, there is more sell-side carve-out work and the divesting of assets that do not match their future strategies. Larger companies are eyeing smaller deals, including emerging startups and venture-backed firms that can offer key innovations, worrying less about EBITDA and more about what the acquisition can bring regarding future value and growth.

Private equity firms are seeing more transaction success in industrial M&A due to the priorities surrounding reshoring and growing technological evolution. Companies are focusing on boosting production processes, increasing automation, and finding innovative solutions for production problems regarding maintenance and improving equipment functionality. High-tech implementation of areas such as automation, digital twin software, data quality, and robotics improves productivity and efficiency, so more private equity firms are attracted to companies that are concentrating on these tools to help facilitate reshoring production.

Favorable demand should continue for industrial distributors, driving sector growth and M&A opportunities for both buyers and sellers. Key trends positively impacting the sector include aging infrastructure upgrade investments, remote monitoring, smart management, waste mitigation, safety, and sustainability.

Businesses focusing on repair and replacement continue to see strong interest from buyers and lenders due to their predictability and resiliency, which is driven by high proportions of non-discretionary replacement demand. Improved economic sentiment and greater visibility will likely cause more buyers and investors to seek out businesses with a higher proportion of new project businesses.

Additionally, global conflicts continue to push companies to seek mergers and acquisitions to bolster their supply chains and diversify their relationships with contract manufacturers. Following the pandemic and amid surging tariffs, companies are looking to work with or acquire businesses in countries that could offer manufacturing capacity outside of certain regions, such as China.

Our Recent Success Stories in the Sector

Some of Benchmark International’s recent successful deals in the manufacturing space include:

• The transaction between Rhodes Manufacturing and Con-V-Air USA
• The deal Between EZ Fabricating, Inc. and House Rock Capital Partners
• The acquisition of Romtex Enterprises, Inc. by Windlass Engineers & Services

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