Trends in Middle Market Manufacturing

By: Jeffry S. Pfeffer :: May 15, 2016

Middle market manufacturing in the Midwest…that phrase, besides being a tongue twister, sparked a high level of spirited discussion at the recent ACG Chicago Midwest Manufacturing conference. The conference featured panels of middle market industry veterans discussing manufacturing trends in M&A, financing, technology and global strategy.

Jeffry Pfeffer, Managing Partner at CapX Partners, a featured panelist discussing M&A / financing trends, provided an overview of the current manufacturing investment and financing climate supported by some interesting factual evidence that might help understand where the markets are going. Here’s a quick look at some of the highlights:

Not so slow growth and $1 trillion

Most economists have called for 2%+ tepid GDP growth in the US economy.  Pfeffer quoted new investment in equipment and software is expected to grow 4.4% in 2016 – not so slow and a bright spot for middle market business. This growth brings the total forecast for the 2016 equipment finance industry to over $1 trillion. Yes, $1 trillion.

As always, there are winners and losers

Just like in the previous year, there were global trends that are expected to negatively impact some market areas, while others are expected to show gains given signs of strength in the domestic environment. Those hallways of light in the economy tend to be the ones that are better GDP drivers. Such as construction, some transportation, computers, software…all are projected to strengthen over the first two calendar quarters of 2016.

The thinning of the energy herd

Prior to 2015, there were no more than 15 bankruptcies per year in the oil and gas arena over a multi-year period. Bankruptcy filings show there were 67 in 2015 and another five more already in early 2016. With these bankruptcies, comes a glut of assets ready to be picked up. As many in the industry have welcomed, and feared, there truly is a rightsizing to the energy business in the US. With this survival of the fittest economy, there are opportunities for those who are patient.

Hoarders Reality TV: Top 500 US Companies episode

We’re all aware of large US Corporates tucking funds away outside of the US. But the amount might astound you. Right now, it’s approaching $2 trillion in US profits held offshore. These dollars could be reinvested in domestic assets (and jobs) or returned to shareholders for re-investment. Out of favor corporate orphans don’t have a chance if the cash is not available for them to improve; enter private equity for creating the dividend to the shareholder and helping these orphans find a new ownership home.

Jeffry S. Pfeffer, Managing Partner

In 1999, Jeff co-founded CapX and is the firm’s Managing Partner. His responsibilities include firm management, leading new business development, and serving as CFO for CapX.

Jeff has over three decades of small to midsize business finance experience focusing on delivering superior risk-adjusted returns to CapX’s investors. He co-founded the firm during an investment vintage when alternative secured financing strategies were deemed not “sexy.” He and his partners raised over $450...