Private Equity has, by and large, shifted its focus away from investing in manufacturing businesses to investing in service and technology-led businesses, particularly over the past 5 years. This is evident in all the industry statistics, and is a long way from the days of heavy investment in the automotive and aerospace supply chain businesses a decade ago, but this trend is now changing…
A resurgence in the appetite to invest in UK manufacturing businesses is underway. This renewed hunger stems from investors seeking access to high growth, differentiated mid-sized companies. With technology enabling rapid advances in materials, product design and manufacturing processes.
There are many more opportunities to invest in specialist manufacturing today as innovation continues to drive the next wave of stand-out companies. This rapid advancement of technology, combined with highly skilled labour forces, has created many attractive businesses with strong IP and technical know-how that are now exploiting their competitive edge in both the UK and overseas markets.
Whilst Brexit provides some possible headwinds, amongst the sea of uncertainty we are all too aware of, the momentum these businesses have created, together with favourable exchange rates and a real drive by government to see innovative UK businesses succeed is ensuring that the opportunity for our strongest specialist manufacturing businesses is extremely compelling.
So what does private equity and Beech Tree look for when considering investing in this area?
Each business must have certain facets to really attract private equity investment – examples of the types of features required include robust growth dynamics in the end-markets served, a position of influence in their specific underlying markets, good intellectual property and manufacturing know-how, design and engineering prowess, high operating gross margins reflecting the “value-add” nature of their proposition, the opportunity to internationalise and the icing on the cake is to have opportunities to acquire complementary businesses and drive out operational synergies.
These characteristics, together with ambitious management teams, facilitate strong value creation with private equity involvement and investment. To give a snapshot, the types of businesses we are currently evaluating in this arena include:
Previous investments made by the partners of Beech Tree in the specialist manufacturing markets include Minivator, a manufacturer of stairlifts sold into UK and international markets, Just Trays, a specialist manufacturer of shower trays supplied into new build and RMI markets and Hotter Shoes, a manufacturer and retailer of comfortable footwear for the over 50s. All of these businesses had strong underlying end-market growth dynamics and were able to move faster and be more nimble with private equity investment behind them.
We at Beech Tree expect to see a higher volume of manufacturing transactions over the next 12 months….