Industrial Products and Services is a vast and very diverse sector. It is certainly a market that August Equity knows well, having deal experience that stretches back almost two decades.
"This is a buoyant space in which we will continue to invest," explains August Equity partner Sam Watkinson, who is responsible for deal origination and execution in this sector. "In 2008 and beyond, we believe there are exciting opportunities throughout the Industrial Products and Services sector." This feature examines the four sub-sectors August Equity has identified as ripe for growth.
Security and defence
Governments are increasingly looking to ensure the safety of the public, homeland security operators and emergency services. "Within this important sub-sector, August Equity is interested in companies producing high-quality defensive components and sub-systems that are effective in mission-critical operating systems," says August Equity partner Sam Watkinson.
Richard Moon, former chief executive of Thales plc, has been chairman of several companies, including August Equity portfolio company Planit Holdings, a leading computer-aided design business. "At the moment, anything to do with the security of the nation is an absolute priority," Moon explains. "Companies that are supplying parts and services to those involved are set for sustained growth."
Environment and recycling
Another area August Equity is keen to invest in is the environment and recycling sub-sector.
"While the environment sector is still relatively young, it has grown rapidly in recent years," says Keith Davidson, investment manager at August Equity. "There are many environmental issues that are high on the political agenda, such as climate change, sustainable development and the creation of new technologies to generate energy from clean and renewable sources. They are all driving growth.
"We believe growth in the environment sector is long term and that there are exciting investment opportunities across the sector, including landfill capacity and specialist waste management services, recycling services and new technologies and services relating to alternative energy."
However, August Equity is targeting specific types of environment sector companies. "Businesses have to be demonstrably scalable. Their technology offering must be proven - not under development.-
Oil and gas
The global upstream oil and gas services industry is growing on the back of a demand/supply imbalance that is driving record oil prices.
"Oil prices are very high - around US$90 a barrel," says Eddie Leigh, one of the managing directors of Simmons and Company International, which specialises in investment banking and M&A for the energy industry. "Demand is strong and continues to grow," he adds. "In China and India, there has been considerable growth in consumption. The industry is struggling to keep pace with demand."
Many oilfields are suffering from high depletion rates, as the technological advancements introduced to sustain production drain fields much quicker. Geo-political issues in many locations are also causing prices to remain high. "Demand for oilfield services and equipment remains very strong. The exploration and production players rely on them to keep production levels up," says Leigh.
The widespread constraint of equipment and skilled people is a 'big issue' he continues. "Further, improving technology is another key challenge. The easy reserves have all been exploited. New ones are going to be harder to find and exploit and continued technology improvement is required for these reserves to be delivered cost-effectively. Those who can develop and bring these technologies to market will find themselves in demand."
"The supply-side constraints in the industry, including supply-chain resource shortages and technological barriers, are driving a restructuring," says Keith Davidson, investment manager at August Equity. "We believe there are exciting growth prospects for companies able to capitalise on this by offering high-quality and high-reliability products as well as skilled labour.
"Major operators continue to attach a premium to such services and businesses that have a platform to exploit global opportunities are particularly attractive from an investment perspective."
Testing, control and measurement
Cutting-edge test, control and measurement technology continues to enable manufacturers to improve the safety, traceability, efficiency and capability of their processes and products. Such technological solutions also enable manufacturers to predict potential problems with equipment long before it malfunctions or breaks down.
"The testing, control and measurement subsector is an established market," says David Silver, managing director at Robert W Baird and a founder member of Baird's European M&A team, who has extensive experience advising private equity clients, corporates and entrepreneurs. "It is robust and very attractive from a private equity point of view."
Increasingly, he says, there are more and more regulations governing the manufacture of goods, particularly regarding safety and traceability. "In automated systems, this is where testing, control and measurement technology is vital," Silver argues. "Manufacturers can't afford to produce high volumes of units only to find out later that there is a serious issue with quality or safety. Increasingly, many manufacturers are relying on inline testing technology to ensure problems don't arise."
"Of particular interest to us are companies with proven technologies and competitive advantages arising from their intellectual property, know-how, product design services and brand," says August Equity partner Sam Watkinson.
If you know of a business that could be of interest to us, please email sam.watkinson@augustequity.com or keith.davidson@augustequity.com