Demand for deals in the industrial manufacturing sector underpinned by digital transformation, commonly referred to as Industry 4.0, is opening vast opportunities for PE firms in North America, CORE Industrial Partners managing partner John May told PE Hub.
Through its platform, CGI Automated Manufacturing, a provider of a suite of in-house, mid-to-high-volume manufacturing capabilities, CORE completed seven add-on acquisitions in under a year.
The firm is investing out of the CORE Industrial Partners Fund II, a $465 million fund closed in February of 2021
“We are very bullish on North America,” May said, adding, “we think this is one of the best times in our history to invest back into the North American industrial base. A lot of technology shifts are happening that are in favor of companies like this one and others in our portfolio.”
Some of the services include laser cutting, sheet metal fabrication, complex assembly, Computer Numerically Controlled punching, robotic welding, stamping and fastener insertion.
Part of this rapid growth, according to May, is supported by onshoring trends. Companies that previously sourced equipment from outside the country are coming back to local manufacturers after having been burned by the snarled global supply chain.
“The supply chain disruptions as a result of what happened with covid-19 as well as the electronics manufacturing sector that is beginning to pop back up, the semiconductor plants that are coming online here in the US are all really good trends that we can take advantage of,” he said.
CORE’s deals are mostly with family or founder-led companies. The latest deal last week involves Tenere, a manufacturer of custom mechanical solutions to the information and communication technology, fiber and renewable energy end markets.
In June CORE’s CGI acquired Elite Manufacturing Technologies, a provider of precision sheet metal components and assemblies and DFF Corporation in March, a maker of precision machined components and electromechanical assembly products.
In February, CGI acquired Haven Manufacturing, a contract manufacturer of highly engineered components, and Richlind Metal Fabricators, a maker of precision sheet metal fabrication and machining services.
In total CGI has amassed approximately 1.4 million square feet of working space with more than 2,000 employees across 14 facilities in eight states in the US as well as Mexico.
Although problems within the supply chain spurred this rapid growth, expansion of certain industries is helping too. The government is committing funds to support the expansion of fiber and high-speed internet connection that is birthing data centers across the country through the Infrastructure Investment and Jobs Act.
“There is also the information communication technology market, the renewable energy, the fiber and 5G markets, aerospace and defense, and warehouse automation, which are all growing because of macro technological trends that are happening,” said May. “Part of our business is tied to that type of opportunity.”
May expressed confidence that his firm will be able to beat competition especially from smaller players. He said macro and technical drivers are in favor of a scaled asset like CGI to do things more efficiently.
“Because of the scale of this business, we are able to be very efficient and potentially out-compete some of the smaller players in the market and then offset some of the material pricing and inflation that is happening,” he said.
Additionally, May believes deal flow will increase because CGI has established an advantage in the market. “We continue to look for opportunistic add-ons that make sense in the right markets with the right customers,” he said. “We will continue to add capabilities to the platform whether through acquisitions or through capital investment.”
The CORE managing partner said his portfolio companies are providing more than manufacturing for their customers, a situation that can open up more growth opportunities.
“We are not just making a part here, we are providing a lot more than that. We are providing technical assistance, prototyping, helping with designs and iterating one product development,” he said.
“We are doing all the things that they [customers] need a partner to do in some of the most critical parts in their supply chain and we are giving that intimate customer experience that they need to be able to be successful in their respective markets.”