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ACG Boston's DealMakers 2012 M&A Outlook Conference

 

ACG logo

The Association for Corporate Growth or ACG is the global community for middle market M&A dealmakers and corporate business community. The key takeaways from the DealMakers 2012 M&A Outlook Conference are summarized in this article.

 

 

Boston city

By Alin Dev

Boston, March'12

ACG Boston (www.acgboston.org) organized the DealMakers 2012 M&A Outlook Conference on February 29, 2012 at the Boston Park Plaza Hotel. The Association for Corporate Growth or ACG is the global community for middle market M&A dealmakers and corporate business community. ACG members get an opportunity to network with Investment Bankers, senior executives from Private Equity and Venture Capital firms.

 

ACG started in 1954 and has grown to more than 13,000 members in North America, Europe and Asia. ACG also organizes events for business school students and that includes the ACG Cup Competition. The ACG Cup provides MBA students with a great platform to analyze a case study based on valuation during M&A and present it in front of industry experts.

 

The M&A Outlook Conference was one of the biggest events of ACG Boston. The conference started with keynote speech from Dr. David Kelly, Chief Market Strategist at JP Morgan Funds. His speech focused on the current state of the US economy. He presented various metrics in consumer balance sheet, housing sector, job market to paint a relatively rosy picture of the future. He was however a bit skeptical about the federal balance sheet and the current environment of high risk – low return environment due to the European crisis.

 

After the keynote, there was panel discussion on “The Reality of Manufacturing in the US”. Participants were – Suzanne Berger, Professor at MIT; Andrew Brickman, Partner at Baird Capital; Daniel Dickinson, Managing Partner at HCI Equity Partners; Karen Kurek, MD at McGladrey; and James Wyner, CEO at Shawmut Corp.

 

Here are the key takeaways from the panel discussion:

Ø Macro trends:

  • US produces 19.4% of world manufacturing goods which is historically stable, compared to marginally lower than China (19.8%)
  • US creates most value in manufacturing where productivity is $180k per worker,  compared to $92k in Japan and $30k in China.
  • Manufacturing has been key to growth of US – for every $1 invested in manufacturing, $1.35 is invested in ancillary activities and for every one job created in manufacturing, 3 additional jobs are created in ancillary activities.
  • Manufacturing sector on average pay a lot higher – average pay in manufacturing sector is $77000 compared to $ 55000 in financial services.

 

Ø Future:

  • In a survey conducted in 2010, 47% CEOs said they will be growing in 2011-12. Key opportunities exist in spaces where technology can be leveraged to improve efficiency of manufacturing processes. Investors are bullish on less capital intensive technologies that increase efficiency of small scale manufacturers.
  • Overall, process control to leverage continuous improvement is the theme.
  • Key sectors to look at are –
  1. Low cost producers, category killers
  2. Safety products
  3. Process control for oil & gas, energy, chemical, paper etc.
  4. Fuel economy, fuel cell technology in automotive sector

 

Ø Markets

  • You have to be global – manufacturers cannot survive on US demand today. China is showing lesser focus on exports and emphasizing domestic demand growth. Many manufacturers in US are setting up joint ventures in China to serve the Chinese domestic market. Imports from China are also slowing as wage increases in China resulted in import prices being higher than domestic production.

 

ØPain points
  • Skill shortage – there are half million open positions. 60% of applicants failed basic assessment tests including drug abuse and criminal records. All employers and immigrants want to work in the US, but govt. policy restricts employment.
  • Govt. policy – most manufacturing units are pass through entities (S-corps). It is important to reduce tax at individual level and implement R&D tax credits. EPA, OSHA etc also add to the pain.
  • Qualitative – tax incentives are important, but not the only incentive for manufacturing. Most investors look at qualitative factors such as quality of life, infrastructure and education level while selecting a state for investment.


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