2015 Private Equity Quarterly ReportQ1 Benesch Manufacturing/ - PDF document

2015 Private Equity Quarterly Report–Q1 Benesch Manufacturing/ Industrials Market Intelligence Table of Contents Manufacturing Part I – Manufacturing Market Overview Subsectors include • Economic activity in the manufacturing sector expanded in April for 15 of the automotive, packaging, 18 manufacturing industries covered in the Manufacturing ISM Report On heavy equipment and Business—including Plastics & Rubber Products; Miscellaneous Manufacturing; aerospace Machinery; Transportation Equipment; and Chemical Products. Only 10 industries • Market Overview reported growth in March, indicating a broader distribution of growth in April • Major Transactions among the 18 industries. • Disruptive Factors • Manufacturing costs are now lower in the U.S. than in Europe and South • Outlook America, and are overtaking parts of Asia, due to: – Oil prices plunging to their lowest level in five years; Part II – Industrials – Sliding costs for oil-derivative products (like plastics), other raw materials, and Subsectors include transportation; coatings, specialty materials, plastics, – Labor costs that are becoming more competitive with Asia’s, where rates have chemicals, adhesives skyrocketed; and and polymers – A rebounding economy, increased efficiency, and a more favorable regulatory environment than most of the world. (source) • Market Overview • Major Transactions • Manufacturing and wholesale distribution (M&WD) rebounded in 2014, after having been one of the hardest hit industries in the U.S. during the 2008-2012 • Disruptive Factors period. The turnaround has captured the attention of the PE industry— • Outlook particularly in the aerospace and defense, food and beverage, and chemicals subsectors. (source) www.beneschlaw.com

Benesch Manufacturing/Industrials Market Intelligence Manufacturing Manufacturing Major Transactions Disruptive Forces • Pittsburgh’s Incline Equity Partners marked its • The evolution of manufacturing in the first local deal since raising a $301-million fund in U.S., Germany, and Japan will stem from August 2013. The PE firm acquired AFC Holdings, a commitment to steady innovation and a supply chain management firm that sources disruptive technologies, including in-factory and provides fasteners such as screws and bolts sensors, increased use of analytics and data to manufacturing and assembly plants. AFC science, in-factory use of augmented reality, had previously been owned by Cleveland-based and drastic increases in how 3-D printing Rockwood Equity Partners. The company’s clients is used for the mass market . (source) are largely clustered in Pennsylvania and Ohio. • Though M&A activity in industrial • Blackford Capital portfolio company Amtech—a manufacturing is expected to remain robust manufacturer of fiber-reinforced plastic as companies seek to acquire next-wave components for the automotive and military technology (source), disruptive implications of sectors—merged with Pa. manufacturer McClarin 3D printing include quality assurance and Plastics. Blackford invests in manufacturing and quality control . service companies between $20 million and $100 million in sales, and also has a Michigan • Advanced manufacturing sits at the Prosperity Fund that invests in Michigan-based intersection of physical (materials and manufacturers. fabrication) and digital (software and hardware) technologies. Companies that are able to • Micross Components, a portfolio company of integrate advanced manufacturing into their Texas-based private equity firm Insight Equity, core capabilities will likely experience an acquired Minco Technology Labs, a provider of accelerated rate of innovation and growth. die processing and semiconductor packaging for (source) military, aerospace, energy, transportation and other harsh-environment markets. • While opportunities will stem from manufacturing know-how, nearly 80% of • One Equity Partners sold paper and corrugated all manufacturing companies are currently board manufacturer Duropack to packaging experiencing a shortage of skilled workers , company DS Smith for $340 million. including engineers, chemists, and machinists. (source) • With U.S. manufacturers the most productive in the world, re-shoring is becoming a best practice. (source) 2

2015 Private Equity Quarterly Report–Q1 for aircraft production in 2015 . The accelerated Manufacturing replacement cycle of obsolete aircraft with next Outlook generation fuel-efficient aircraft, and growing • Private equity outlook will brighten for the passenger travel demand, especially in the Middle manufacturing industry in 2015 as it continues East and the Asia-Pacific region are key drivers its upward trajectory due to: behind this trend. – The steady decline of energy costs , oil prices • While the rate of growth for the U.S. A&D industry and natural gas; has been slowing over the last two years as a – Low interest rates and plentiful credit providing result of declines in defense sector spending, increased access to capital ; and defense spending is increasing in several areas of the globe , especially in the United Arab – A growing number of manufacturing companies Emirates, Saudi Arabia, India, South Korea, Japan, adopting new time- and cost-saving China, and Russia, as these countries equip their technologies such as 3-D printing . (source) militaries with modern defense platforms and • The commercial aerospace sector is likely to enjoy technologies. (source) close to an 8% growth rate, setting new records deploy cash. Within types of manufacturing, PwC Industrials said 38% of deals involved industrial machinery Market Overview companies, 20% fabricated metal products, 13% • Financial investors’ focus shifted significantly rubber and plastic products, 6% miscellaneous toward specialty chemicals in 2014 : While and 23% electronic and electrical equipment. only one-third of companies acquired by financial (source) investors in 2012 were active in specialty • The digital age is having a profound impact on chemicals, the share in 2014 was 50%. (source) the chemical sector. Recent digital technology • According to a quarterly analysis by innovations include advanced supercomputing Pricewaterhouse Coopers, mergers and and processing technologies, advanced analytics, acquisition activity in industrial manufacturing data visualization, artificial intelligence, and surged in 2014 as companies are more actively machine learning. (source) shedding “non-core” units, then looking for ways to 3

Benesch Manufacturing/Industrials Market Intelligence Industrials Disruptive Forces Major Transactions • Respondents in an industrial manufacturing survey said the main trends driving acquisition activity • Ohio-based Ferry Industries, a manufacturer of will be the need for market access (51%), the need rotational molding machinery, was purchased for technology advancement (31%), and the need by Madison Industries, successor to private to cut costs (28%). Divestitures will be driven by equity firm Madison Capital Partners. the opportunity to sell non-core businesses (73%), • Berwind Consolidated Holdings bought the opportunity to monetize a successful business Protective Industries, the parent company (38%), and the opportunity to sell an unprofitable of Caplugs—a producer of caps, plugs, business (32%). (source) tubing, netting and other protective goods for • A bipartisan bill to reform the EPA’s chemical industry—from Windjammer Capital Investors. safety oversight is picking up steam in the • Boulevard Acquisition, the public investment Senate, now having 36 co-sponsors, split equally vehicle of Avenue Capital, agreed to acquire between the two political parties. The bill is the first AgroFresh, Dow Chemical’s specialty chemical major environmental law to be drafted and possibly business, for $860 million. passed since the amendments to the Clean Air Act in 1990. The legislation would require the EPA • Dutch chemical maker Royal DSM agreed to to only consider health and safety in how it sell a majority stake in a basic plastics and regulates chemicals, and the agency may not resins business to CVC Capital Partners in a consider the costs to industry. (source) deal valuing the assets at as much as $816 million. “We are only just beginning to get a glimpse of • Orica sold its chemicals unit to Blackstone for how the rapid acceleration of digital technologies $586 million. within the chemical industry could disrupt • Missouri-based Accella, backed by Arsenal traditional business models and operations.” Capital Partners, is buying Calif.-based IPS – Duane Dickson, Deloitte Polymer Systems, a maker of polyurethane products, in order to expand its business on the west coast. • A. Schulman, an Akron-based plastic compounds, powders and resins supplier, will buy Citadel Plastics Holdings for $800 million from private equity firms HGGC and Charlesbank Capital Partners. • Apax agreed to purchase Quality Distribution for a reported $800 million. Quality currently operates the largest chemical bulk logistics network in North America. 4