Change Country

Industrial Automation Companies

M&A Trends in the Industrial Automation Space

Posted on November 28, 2022 by

Bryan Powrozek

Bryan Powrozek

Share This

IA M&A TrendsStaying current in the automation sector can be challenging in a highly active economic climate unless your network includes people like Clint Bundy, a Managing Director at Bundy Group—a boutique advisory firm specializing in business sales, capital raises and acquisitions. 

M&A Trends in Industrial Automation

Clayton & McKervey welcomed the opportunity to talk with Clint about 2022 year-to-date mergers and acquisitions (“M&A”) trends and drivers, the impact of inflation and recent transactions occurring in the automation space. We can all benefit from Clint’s investment banking experience-backed analysis and insights, regardless of which side of the deal we’re on. 

Defining the Automation Market 

The automation market is a massive industry with many different sub-verticals. It is valuable to understand the different segments, as investors and buyers have different strategies according to the respective solutions. As a background, below is a snapshot of several key sub-verticals within the automation sector:  

  • Control System Integrators – Responsible for designing and implementing sophisticated control systems for their clients. (Company Example: MR Systems) 
  • Automation Manufacturers – Manufacture or fabricate branded automation products or customized products. (Company Example: SJE) 
  • Software Automation Solution Providers – Provide proprietary software solutions that allow clients to best automate and monitor end-user systems. (Company Example: Dorsett Controls) 
  • Automation Distributers – Offer the market a range of automation product lines, which could include robotics, sensors, vision systems and motion control. (Company Example:  iAutomation) 

Inflationary Impact on the M&A Landscape 

The direct impact of inflation is closely monitored by investment bankers, business owners and buyers. If the cost of products increases rapidly but a company isn’t passing through the costs, then trying to sell or raise capital for that business can be more challenging. In addition, declining business financial performance due to inflation could create downward pressure on a company’s valuation. 

With automation, backlog can stretch out three, six or nine months. By the time a company receives the materials—especially with supply chain delays—the product costs are often creeping up. Many automation solutions firms are constantly educating their customers about supply chain issues and the impact of rising prices. In addition, the proactive automation solutions firms are either baking those potential price increases into proposals or successfully passing those cost increases through to clients.

Bundy Group has automation clients that are incurring higher costs due to inflation and supply chain issues, but most have been successful in passing through price increases, which has allowed these organizations to retain optimal profitability and valuations. In his role, Clint maintains a close eye on the pulse of the market and any impact inflation could have on valuations for companies in the automation sector.  

M&A Trend: Financial Sponsor Roll-Ups 

M&A activity in the industrial automation space has accelerated over the past five years due to financial sponsors. These organizations make an initial, or platform, investment and then focus on completing add-on acquisitions to grow the platform. As an example, in 2019 MMF Capital, a Chicago-based capital group, invested in Dorsett Controls, a national automation firm focused on the water sector. In 2022, Dorsett acquired Sunapsys, a water-focused control systems integration firm, with the goal of adding new talent, clients and geographies to Dorsett’s platform. 

Financial sponsors include private equity groups, family offices and other institutional investors. As return-driven investment groups, they have a heightened focus on finding markets and companies where the risks are low and the rewards are high. The automation market “fits the bill”, which is why so many sponsors are either invested in the segment today or are desperate to complete an acquisition in it. Clint sees no signs of this financial sponsor “roll-up” momentum slowing or stopping, especially since consolidation still has plenty of runway and the automation sector is forecasted to grow. 

M&A Trend: Acquiring for Talent 

Automation companies active in acquisitions (i.e., strategic buyers) and financial sponsors invested in the sector have numerous avenues for growth. However, a common bottleneck is finding talented management and employees to perform this highly skilled work. As it relates to M&A, companies are utilizing acquisitions to acquire new talent. This is affectionately referred to as an acqui-hire strategy.  

Clint stated, “financial sponsors are frequently partnering with industry veterans to find investment opportunities and then adding that professional to the leadership team of a platform company. As an example, Mason Miller, a technology executive, partnered with MMF Capital on the Dorsett acquisition and now serves in a Chief Executive Officer role with the company.”  Clint added, “automation companies are adding new bench depth from the CEO position all of the way down to the field technician level through the use of acquisitions in order to best execute on growth opportunities and operational improvements.”  

Q3 2022 Transaction Highlight 

On September 6, Hitachi, a global strategic buyer, announced that it was acquiring Flexware Innovation, an industry 4.0 systems integrator. This acquisition was a follow-up to Hitachi’s 2019 acquisition of JR Automation, an international intelligent automated manufacturing solutions firm. The JR Automation and Flexware Innovation acquisitions were clear signals from Hitachi to investors that its management team believes in utilizing acquisitions, where scale and synergy opportunities exist, to build value for the Hitachi organization. 

Aggressive strategic buyers like Hitachi have proven that they are willing to pay seller friend valuation multiples when growth and synergies can be achieved. To further the example, the JR Automation acquisition set a market high in 2019 in terms of Transaction Value / EBITDA (Earnings Before Interest Expense, Taxes, Depreciation & Amortization) multiples. Clint has witnessed valuation multiples do nothing but rise in the automation sector over the past five years. With the demand from financial sponsors and strategic buyers far outweighing the supply of potential acquisition targets, Clint sees automation owners realizing attractive valuations in a sale or recapitalization, especially when competitive pressure is exerted on buyers through an investment banker-led sale process. 

About Bundy Group  

Bundy Group specializes in representing business owners and management teams in business sales, capital raises and acquisitions. The organization has been active in the automation sector for well over a decade, and Clint is a recognized investment banking specialist in the industry.  

As an investment banking specialist representing business owners, Clint and the Bundy Group team continually analyze automation mergers and capital raises to identify market trends. In addition, through its current client engagements and perpetual discussions with strategic buyers and financial sponsors, Bundy Group has a real-time view of the relevant metrics and industry players. The company provides monthly updates through national and trade media content partnerships as well as on its own website 

Read Bundy’s September article in Control Engineering for details on their top five automation market observations as well as a rundown on September automation transactions.  

Continue the Conversation 

If you are considering a merger or acquisition, or would like to discuss these trends and more, please reach out. We look forward to helping your industrial automation company successfully navigate the changing M&A landscape. 

Share This

Bryan Powrozek

Senior Manager, Industrial Automation

As the leader of the firm's industrial automation group and host of The Sound of Automation podcast, Bryan helps owners free up cash flow and scale their businesses.

Related Insights

The Sound of Automation: Challenges for System Integrators

In this podcast episode, we talk about the challenges facing system integrators today with our guest Jose Rivera, CEO of CSIA. Bryan and Jose discuss the main drivers that are impacting businesses including staffing challenges, supply chain, inflation and more.

by Bryan Powrozek

Beyond the Multiple: How Profitability Impacts Value

If you are a business owner curious about the value of your business, you probably already know that EBITDA is one method of determining it. However, that is only half of the equation. Learn about the role profitability plays.

by Bryan Powrozek

The Sound of Automation: International Expansion 101

In this podcast episode, we talk about global expansion with Teresa Gordon who leads our international practice. Bryan and Teresa discuss what companies should and should not do when setting up a U.S. subsidiary. Learn why it's important to think about your 'why' before building your global business plan.

by Bryan Powrozek

The Sound of Automation Podcast

Industrial automation businesses are the driving force behind Industry 4.0, and Clayton & McKervey is here to help.

Skip to content