Mergers and acquisitions (M&A) are major events in the life of any organization. For manufacturers, they also mean big decisions about asset integration: physical, involving production plants and machines, and technological, which usually involves complex business application software. According to a recent study by London-based professional services firm PricewaterhouseCoopers (PwC), M&A activity has increased across industrial manufacturing. SearchManufacturingERP Site Editor Brenda Cole spoke with Steve Eddy, global industrial manufacturing advisory leader at PwC, to learn more about M&A trends in manufacturing and how it's affecting technology purchases and implementations.
Why did you conduct this study?
Steve Eddy: We thought this topic was a timely one from the standpoint that a lot of companies have done numerous things to try to get their costs under control. The whole notion of growth is really prominent, and while mergers and acquisitions activity continues to enjoy certain levels of global success, the real focus on organic growth is a topic that our clients are trying to get their arms around.
The survey was done across all sectors [of manufacturing], with a focus on industrial manufacturing. That includes heavy manufacturing, agriculture and mining.
What interesting M&A trends have you noticed emerging around industrial manufacturing?
Eddy: I think the preeminent one is the correlation between those companies that really focus on innovation and doing it well, and how they're growing. Those that do have a strategy around innovation typically see 30-40% growth compounded over a three-year period.
Within our portfolio, there's a trend in the marketplace around the Internet of Things and how organizations are beginning to focus on that. I think that's a really interesting one. It manifests itself not only from a product standpoint; companies are also looking at technologies for different business models and relationships in the marketplace. Companies that are coming out of their comfort zones and are more progressive in their thinking are yielding better performance.
How do all these M&A trends affect software and technology for manufacturers?
Eddy: Machine-to-machine is beginning to get more focused [around M&A]. I think from a software standpoint, that's exciting. For the information flow that goes through an ERP platform, as those connections between machines [at merged organizations] are strengthened, the opportunities for software in existing platforms will become much more pronounced and the impact of information delivered will be greater.
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We hear a lot about "big data" and data analytics, and I think that is in the middle of [M&A] as well. When I look at our clients in this space, another part of innovation for them is to look not only at the products they're selling, but at the whole product lifecycle. We have a number of clients who are starting to extend their product lines in terms of more service operations and preventative maintenance. [With connected machines], manufacturers are getting their hands on more data that could be considered predictive. All this enables management to grow their business and better their returns.
Do you think manufacturers are taking technology issues into consideration during mergers and acquisitions?
Eddy: I see a mixed bag. I have clients that, when they're looking to acquire companies, a big part of the criteria is to also acquire that company's technology. They want to acquire that technology either because their own R&D hasn't been paying off or they haven't invested in technology accordingly.
There's also the converse of that, where a company's M&A strategy could be more around geographic footprints or other things. It some ways, it all deals with market positioning and the maturity of the company.
Can you offer any advice to manufacturers involved in mergers and acquisitions?
Eddy: In an M&A setting, we would encourage clients to take a broader view of the target company's approach to innovation. It's one thing to look at their R&D pipeline, but another to say, "Does this target really have a progressive vision and strategy around innovation? Does it include business models, technologies and services? Does it include things like collaboration and open sourcing?"
Most companies today, as they're looking to acquire organizations, they're doing the appropriate due diligence around commercial, financial and taxes. But I'm seeing more companies also doing more around the cyber implications and threats associated with their target. At the end of the day, any issues the target might have from a cyber standpoint would become the acquirer's. So I'm seeing a little more discipline being applied in that area from the M&A side.
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