The past four years have seen a rapidly changing landscape in terms of potential buyers and investors in the controls and automation and internet of things (IoT) segments. The business world continues to focus on methods to improve productivity through the adoption of software, monitoring and connectivity tools, robotics, etc. The result has been rapid growth in the controls and automation and IoT markets. This is attracting a new group of private and growth equity investors, as well as increased participation by industry buyers, also known as strategic buyers, focused on taking advantage of this new trend.
Whether a company is a pure control systems integrator, a controls and automation product manufacturer or provider of technology-focused applications, the options available to owners for growth capital and/or business sales have increased substantially in the past few years.
Private and growth equity
Private equity groups are private pools of capital, managed by investment professionals, which typically acquire a majority equity stake, but not the entire company. Growth equity groups are similar in profile but are usually focused on completing minority equity investments, or a combination of debt and minority equity, in high growth companies. Private and growth equity groups are focused on investing in growth markets and finding ways to help management expand through organic growth opportunities and add-on acquisitions. Within the past few years, a wave of private and growth equity groups have entered the market, validating the controls and automation segment as an attractive one. This includes such transactions as:
- Saw Mill Capital’s investment in iAutomation
- Lightview Capital’s investment in The Clarke Companies
- Wincove’s investment’s in Aloi
- DFW Capital’s investment in Superior Controls
- Union Park Capital’s investment in Process Censors Corporation
- JMC Capital’s investment in Comark
In addition, a critical mass of other private and growth equity groups are eager to break into the controls and automation market through a platform investment.
Classical versus new strategic buyers
Strategic buyers have been active and continue to be very relevant players in the controls and automation segment. The legacy, or classical strategic, buyers maintain a relatively consistent acquisition strategy that focuses on obtaining new market share and augmenting existing capabilities. The traditional market buyers within the controls system integration segment include groups such as Wood Group, SJE Rhombus and Averna. The traditional strategic buyers within the controls and automation product and technologies segment include Johnson Controls, Honeywell and Fortive (formerly a division of Danaher).
The rapidly evolving demand for quality technology offerings and engineering-driven technical services segment is producing a non-traditional, aggressive class of strategic buyers. These groups are using acquisitions to redefine their overall strategy. Transaction examples include:
- Rockwell Automation, which complimented its product offerings with new system integration capabilities through the MAVERICK Technologies acquisition
- Delta Electronics, which expanded into automation through the acquisition of Delta Controls (an interesting similarity of company names)
- Panduit’s growth into the data center monitoring segment through the acquisition of SynapSense
The enormous opportunities that the controls and automation segment offers are motivating strategic buyers to redefine their strategy and consider any number of acquisitions, so they can stay ahead of the competitive business curve.
Internet of Things (IoT)
The emergence of the internet of things is driven by the market demand for more information, gathered through any manner of sensors, with the primary purpose of maintaining and improving productivity at the most basic level of a machine or piece of equipment. Plamen Nedelrchev, IT Engineer with Cisco, stated that there were “1,000 Internet devices in 1984, 1 million Internet devices in 1992, and 10 billion in 2008. 50 billion devices are expected to be connected by 2020.” Furthermore, Nedelrchev highlighted that “in 2011, the number of new things connected to the Internet exceeded the number of new users connected to the Internet.” IoT explosion has also been enabled by cloud computing and the technological ability to store, access and interpret data at any given time. Recognizing that we are still in the early stages of the IoT market expansion, strategic buyers and growth equity investors are the key suitors for the burgeoning IoT technologies and companies currently in the market. Strategic buyer transaction activity has included the following:
- PTC’s acquisition of Axeda
- Accenture’s acquisition of Cimation
- GE’s acquisition of ServiceMax
- OnePlus Corp’s acquisition of SmartBin
Growth equity investment activity has included the following:
- Kleiner Perkins’ investment in relayr
- GE Ventures’ investment in SightMachine
- Intel Capital’s investment in Fibocom
As the IoT market continues to grow and mature, there will likely be an acceleration of strategic buyer and investor activity.
Increased strategic, private equity and growth equity demand for acquisitions and investments in the controls and automation and IoT markets lead to stronger business valuations, which plays to the advantage of shareholders and managers active within these segments.
Clint Bundy is a managing director with Bundy Group, a boutique investment bank that specializes in representing controls and automation and internet of things companies in business sales, capital raises and acquisitions.
