Fourth Quarter 2023 Industrial Growth Overview Provided by SOLIC Capital Advisors
The extended period of high interest rates and rapid inflation pushed many companies into liquidity and solvency issues in 2023, leading to a busy year for bankruptcy filings. The Industrial sector finished 2023 with the second most bankruptcies of all sectors, trailing only the Consumer Discretionary Sector. More at www.soliccapital.com
M&A activity in the Industrial sector increased in Q4 with 139 transactions, as optimism over economic stability in 2025 grew among acquirers. Public companies increased acquisition activity on forward economic forecasts, targeting opportunistic acquisitions in middle market industrial manufacturers with emerging technologies
Manufacturers began realizing enhanced operational efficiencies after efforts to onshore production over the last two years. Companies across the industrial sector made concerted efforts to onshore production when supply chain issues, inflation, and global economic concerns rose in 2021 and 2022 o Despite global supply chains normalized and inflation cooled in 2023, American Industrial Manufacturers continued to onshore their manufacturing processes in order to maintain maximum control over the start to finish process
In 2024, manufacturers are aiming to increase efficiency, costs, and quality through digitization of manufacturer equipment and processes
The Electronics & Components subsector led Industrial M&A activity once again, with 54 transactions occurring in Q4 2023 (39% of all deals)
A strong fourth quarter performance in public markets led valuation multiples across the sector to increase significantly– In Q4 2023, the average EV / EBITDA multiple grew by 19% to 13.1x (from 11.0X).
Fewer corporate bankruptcy filings occurred in Q4 than the prior quarters in 2023, however filings remained substantially higher than the prior few years. 133 companies filed bankruptcy in Q4 (down from 182 in Q3), bringing the annual total for 2023 to 654 o FY 2023 bankruptcy filings represented a 73% increase from the prior year and exceeded total number of bankruptcies during 2020 (639 bankruptcies)
While economic forecasts indicate a favorable outlook for industrial companies, manufacturers still face short term headwinds. Manufacturers struggle to hire and retain workers due to near historically low unemployment rates. The U.S. unemployment rate ended the year at 3.7% (6.3M people). Other manufacturers still face persisting headwinds from global supply chain disruptions
Q4 2023 Industrial Sector Key Indices: The performance of certain key economic indicators suggested that the industrial manufacturing sector continued to stabilize after to previous sharp declines from prolonged economic concerns: Purchasing Managers’ Index (PMI) – decreased by 3.3% to 47.4 in December from 49.0 in September but finished 2023 down 2.1% December 2022. The PMI inched closer to level after fourteen consecutive months of double digit % declines from June 2022 to July 2023 U.S. Industrial Production Index (IPI) – declined slightly on a quarter over quarter and year over year basis. The IPI decreased -0.8% to 102.5 from Q3 and -1% from December 2022
Q4 2023 Equity Capital Market Returns: The SOLIC Industrial Sector Growth Index (“SISG Index”) increased (11.2%) as compared to the broader S&P (13.6%) and NASDAQ (11.2%) indices over the same period. All seven subsectors experienced positive returns during the quarter.
SISG Analytical Instrumentation & Testing Equipment subsector performance: 9.4%
SISG Chemicals subsector performance: 6.9%
SISG Electronics & Components subsector performance: 15.0%
SISG Metals subsector performance: 13.6%
SISG Plastics & Packaging subsector performance: 5.8%
SISG Precision Machine Products subsector performance: 13.9%
SISG Resource & Recovery subsector performance: 14.2%