by Elizabeth Hines | Sep 29, 2015 | Blog, Strategy, Supply Chain
Across the globe, many industries are seeing aftermarket services outperforming the general market. We can point to many reasons for this occurrence: the tendency for aftermarket services to remain stable in trying times, buyers remaining flush with cash, competition among buyers driving valuations higher with historically low pricing, and buyers making strategic purchases to focus on supplementing growth of their own businesses by acquisition. Regardless of the reason why, investors have become increasingly interested in the aftermarket sector and the implications of this are significant. These deals have the power to change the market, alter customer base, and challenge companies’ competitive positions.
This is a far different story from just four years ago when an article ran in the New York Times Dealbook section by Stephen Davidoff titled, “For Private Equity, Fewer Deals in Leaner Times.” Davidoff’s article listed the primary forces that drove turbulence in that marketplace. At that time, there were too few “good” merger and acquisition opportunities, “deals” were greatly overpriced, and there were fewer sellers in the market (and the ones that were making themselves available are being snatched up by strategic buyers). But what was most interesting, and what I’ve been tracking since then, was that the private equity industry’s biggest problem was having too much money to invest. You read that correctly — too much money to invest.
When I read the phrase “too much money to invest,” it got me thinking about the hi-tech aftermarket services industry and how underserved it had been from a private equity standpoint. In the hi-tech aftermarket industry in particular, there were, and still are, plenty of really good platform companies with strong footholds in service or geographic niches that truly make them unique and valuable. What they typically lack, though, are the funds and guidance that a responsible and possibly patient private equity firm can offer. Not only do these platform companies in the high-tech aftermarket services space make for attractive investments, but it seems to me that the financials in these “niche companies” are there to support private equity interest, as well. These businesses typically have gross margins in the 35-40 percent range and net margins that are really attractive when compared with the overall hi-tech space. Combining or rolling up companies with expertise in adjacent service and/or geographic areas into a “newco” with broader reach and a deeper service offering will surely deliver financial results that private equity would consider better than not investing. The high-tech aftermarket services space is a fractionalized marketplace with accomplished participants, quality customers, and better than traditional financials when compared with the overall industry averages. And private equity firms have started to realize these points. To this, I say bravo, but there’s still lots of money that needs to be put to work.
by Elizabeth Hines | Mar 14, 2013 | Blog
I read an article in the New York Times Dealbook section by Stephen Davidoff titled, “For Private Equity, Fewer Deals in Leaner Times.” The article has a lot of interesting information on the changing times in the private equity markets. The author lists the primary forces driving this turbulence.
Too few “good” merger and acquisition opportunities are being seen. “Deals” are greatly overpriced. There are fewer sellers in the market, and the ones that are making themselves available are being snatched up by strategic buyers (those from the industry, and not financial buyers), who can drive offer prices higher, leaving them with little or no margin. But what swung my head around the most was that the private equity industry’s biggest problem is having too much money to invest.
You read that correctly — too much money to invest. To be clear, Davidoff does an excellent job of articulating the state of private equity and the hurdles that are changing that industry. Nevertheless, when I read the phrase “too much money to invest,” it got me thinking about the high-tech aftermarket services industry and how underserved it has been from a private equity standpoint.
Having worked for a private equity-owned high-tech aftermarket services business and now as an adviser to that space, I see plenty of really good platform companies (ones that can be built upon) with strong footholds in service or geographic niches that truly make them unique (read: “valuable”). What they lack are the funds and guidance that a responsible and possibly patient private equity firm can offer. The recent historic activity would make you think it is an active marketplace, but aside from a few high-profile transactions and the most recent Blue Raven deal with Leading Ridge Capital Partners, LLC, the activity is spotty at best.
Not only do these platform companies in the high-tech aftermarket services space make for attractive investments, but it seems to me that the financials in these “niche companies” are there to support private equity interest, as well. These businesses typically have gross margins in the 35-40 percent range and net margins that are really attractive when compared with the overall high-tech space.
Combining or rolling up companies with expertise in adjacent service and/or geographic areas into a “newco” with broader reach and a deeper service offering will surely deliver financial results that private equity would consider better than not investing. That said, I know I am taking some liberties in describing the process and its complexity, but I do so to make a point. The high-tech aftermarket services space is a fractionalized marketplace with accomplished participants, quality customers, and better than traditional financials when compared with the overall industry averages. To this, I say, “Hey, private equity guys, look over here.”
by Elizabeth Hines | Apr 30, 2012 | Blog
I think it is safe to say that with Avnet’s latest announcement regarding their introduction of Avnet Integrated Resources , that the aftermarket logistics business just got a little more crowded, a little more consolidated, and a lot more recognized.
The terms aftermarket services, integrated logistics, and product lifecycle managementare by no means new. They encompass the services commonly referred to as technical support, field support, service parts logistics, electronics repair, asset recovery, data destruction, and e-cycling. The “new” piece is what was once a fragmented industry of focused organizations servicing their niche in the aftermarket space is now regarded as a big business opportunity for companies like Avnet. And let’s not forget about Arrow Inc.’s interest in this “niche”. Almost two years ago, Arrow got into the aftermarket services space with their strategic acquisition of Converge and later branded the service offering ReSolve by Arrow.
What does all of this mean? For the marketplace, it means the recognition that profitability is not only about bringing a product forward; it’s about managing every phase of the product lifecycle from design to de-manufacture. For industry participants, it means that everyone needs to step up their game in terms of service strategy, competency and breadth as the “big-boys” have entered the game. And for customers, it means a qualified one-stop-shop for all of their life-cycle needs. Aftermarket services has come of age.
