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Private equity’s role in driving an Industrial revolution
5-MINUTE READ
December 10, 2024
In today's rapidly evolving business landscape, the Industrial sector stands at a crossroads, facing a myriad of challenges that demand a strategic overhaul. In this environment, private equity (PE) can serve as a catalyst—through its unique ability to combine capital infusion with operational expertise—reshaping companies and unlocking new value, growth and global impact.
Accounting for 14% of global PE/VC deal value and 12% of deal volume in 2023, the Industrial sector represents a substantial addressable market for PE firms. While deal activity has declined in this period, Industrial deals have shown a smaller drop compared to other sectors, underscoring the sector’s resilience.1
The decline in Industrial transactions from 2022 to 2023 is markedly lower than in other industries.
Navigating complexity to unlock value
Unlocking the considerable value creation opportunities in the Industrial sector requires a thorough understanding of its unique challenges.
After decades of steady operation, the engine of many Industrial companies has started to stutter, due to internal challenges stemming from their distinct operational characteristics, alongside external pressures from an evolving market.
01
Limited agility
Industrial companies traditionally focus on product and capital-intensive engineering and manufacturing operations. Serving primarily a B2B customer base, they operate with extended product and service cycles, which can limit their agility, adaptability and capacity for innovation.
02
Difficulty attracting capital and talent
The Industrial sector faces a growing talent shortage, with demographic shifts and competition for skilled workers straining operational capacity. Despite their global reach, many Industrial companies operate as mid-caps rooted in family traditions and are often located outside major metropolitan areas, making it difficult to attract resources and talent.
03
Lagging cost and process efficiency
Limited investment in technology has left the Industrial sector "under-digitalized," with outdated operating models and a lack of centralized back-office functions further constraining efficiency.
These internal challenges are compounded by a range of external pressures that intensify the need for transformation across the industry.
01
Operating model challenges
Mounting pressure from China and emerging markets is pushing companies to accelerate innovation and optimize manufacturing capabilities. At the same time, global supply chain disruptions have exposed vulnerabilities, forcing businesses to rethink their strategies and operations.
02
Changing consumer preferences
Consumer demand for customized solutions and digital experiences are driving shifts in business models toward servitization. An estimated 60% of Industrial companies' revenue will be generated by services in the next five to ten years.
03
Technological disruption
The rise of (generative) AI and other technological developments present both challenges and opportunities. New technologies like cloud computing, digital twins and agile engineering have the potential to reduce time-to-market by an estimated 81%, underscoring the transformative impact of innovation on Industrial operations.
PE as a catalyst for the Industrial revolution
Despite these challenges, the Industrial sector is primed for transformation, with significant opportunities to drive efficiency, innovation and growth. Addressing these hurdles demands strategic investment, digital modernization and operational improvements.
This sets the stage for PE firms to play a transformative role, combining capital with operational expertise to drive lasting change—precisely the catalyst required to revitalize the Industrial sector and position it for resilient growth.
However, traditional strategies that worked in the past, such as quick cost-cutting for efficiency or asset optimization for resale, are no longer sufficient on their own. A strategic “buy-transform-sell” approach allows PE firms to implement value creation plans over longer holding periods, combining efficiency gains with future-proofing initiatives to achieve desired exit multiples.
Leveraging service-based models
can drive future revenue growth for traditionally asset-intensive Industrial companies. Expanding into new markets, along with enhancing sales effectiveness through new CRM solutions, unlocks further opportunities for strengthening customer relationships and driving growth.
Reshaping operating models
and utilizing global business services or outsourcing provides access to specialized skills. Accelerating digital transformations is critical to driving operational improvements and process efficiencies.
Reshoring manufacturing
enables companies to build resilient, localized supply chains and reduce exposure to global disruptions. Carve-outs of non-core business units and selective M&A offer additional avenues to build sustainable competitive advantages.
Optimizing debt structures and leverage
enhances access to capital. Value-based deals with transformation partners further align risk and benefits, driving balanced, long-term success.
A strategic “buy-transform-sell” approach allows PE firms to implement value creation plans over longer holding periods.
The Industrial sector offers PE firms a rare opportunity to fuse innovation with tradition, unlocking potential at the intersection of technology, sustainability and operational mastery.
True strategic overhaul requires seamless integration of investments into various value creation levers. As an end-to-end partner, Accenture can provide integrated solutions that help address both internal inefficiencies and external pressures—streamlining dependencies and accelerating outcomes—to position Industrial portfolio companies for long-term growth and resilience. It’s about shaping the next Industrial Revolution, one transformative deal at a time.
Written in collaboration with Alexander Iten, Jana Kollath and Tobias Kerschhaggl.
1 Accenture Research analysis of PitchBook data, 2024.
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