Aug
05

Industrial Internet of Things (IIoT) M&A Transaction Drivers

Industrial Internet of Things (IIoT) M&A Transaction Drivers

Mergers and acquisitions (M&A) transactions within the Industrial Internet of Things (IIoT) carry specific requirements that sellers, buyers, and advisors must carefully consider when going through the M&A process. This report identifies four key valuation and transaction success drivers in IIoT M&A transactions as tangible or intangible assets. 
Tangible drivers include income statement and balance sheet adjustments as well as working capital calculations. Intangible drivers include supply chain risks and customer contracts, such as pricing models, contract durations, average order quantities, and other contractual arrangements with the IIoT companies’ end customers. Correctly identifying and measuring these factors materially impacts valuation and the likelihood of closing a transaction.

Defining the Scope of IIoT Businesses

Industrial Internet of Things (IIoT) companies use physical devices, connect them to the internet, and then provide some enhanced functionality to a customer. This functionality includes but is not limited to automation, remote monitoring, and predictive maintenance. IIoT devices include equipment, machines, sensors, monitors, and devices to collect, analyze, and share data in industrial settings. These devices can be used in logistics, manufacturing, healthcare, oil and gas, and transportation industries. 

IIoT businesses operate under diverse business models. Some IIoT firms sell a comprehensive solution, referred to as Platform as a Service (PaaS). PaaS providers offer infrastructure and tools for device connectivity, data storage, real-time analytics, and integration with other enterprise systems. They allow businesses to create custom IIoT applications tailored to their specific industrial needs without having to build and manage the underlying infrastructure. In return, customers pay based on usage or the number of devices connected to the platform.

Other IIoT firms engage in hardware sales with software and service contracts included in the pricing to maintain the device. Either the PaaS model or the hardware sales model may monetize the data they collect by selling it to other businesses that benefit from the information. And finally, IIoT firms may operate on a software-only model, where they license their technology directly to other OEMs or customers who own the devices themselves. 

The business models of IIoT firms are diverse, but they all rely on hardware to provide their core value to customers.


Tangible Drivers

Tangible drivers for IIoT transactions impact how firms manage the costs of their devices across the value chain. Most IIoT companies do not manufacture their own devices; instead, they resell them with value-added software and ongoing services. As such, the treatment of each IIoT device—from its purchase by the manufacturer to its sale to the end customer— results in various accounting entries affecting both the income statement and balance sheet. 

Income Statement and Balance Adjustments 

To analyze the impact of account methods on investment transactions, let us consider two options for recording the value of an IIoT device through its lifecycle from OEM acquisition to ultimate sales to the customer. Sometime IIoT firms account for the initial acquisition of an IIoT device from a manufacturer (such as GE or Siemens) as a balance sheet accounting entry. Cash is used to purchase the device, reducing the cash balance on the balance sheet while increasing current assets. Once the device is acquired, software engineers and hardware engineers modify the physical device to enhance its capabilities. This investment of time has associated labor costs and sometimes associated physical product costs. In this example, we will refer to this as Option A. Alternatively, the IIoT firm’s expenditure on enhancing the device may result in these costs being recorded in the income statement as expenses, which we will refer to as Option B. 

If a company elects to record these value-added enhancements on their income statement only, they are simply overreporting expenses on the income statement and underreporting the cost of goods sold (COGS) when the device is ultimately sold to the end customer (Option B). If companies account for value-added enhancements by increasing the value of the inventory on the balance sheet, they must also increase the COGS by the same amount when the device is sold and generates revenue on the income statement (Option A). When the device is sold to the end customer, this COGS is deducted from the product’s revenue, thereby reducing net income, which reduces equity by an equivalent amount through retained earnings on the balance sheet. 

Consider the following: A device is acquired for $100. A firm invests $20 in value-added enhancements.

Option A

If the firm chooses to add all the value-added enhancements to inventory, the additional $20 of expenses is listed as a current asset on the balance sheet. Cash is reduced by $20 and inventory increases by $20. It does not impact the income statement. When the device is later sold, the COGS is $120, not $100. This allows the ultimate expenses to appear on the income statement at the time of the device sale. Assume each device sells for $180.

Therefore, the income statement records revenue of $180, and COGS of $120, so $60 is the gross profit.

Option B

Compare this example to one in which a company did not account for these improvements on the balance sheet. The device is sold for $180; COGS is $100, therefore $80 is available for the gross profit. This does not include the $20 paid for services and materials. That was already recorded previously as an expense in the income statement.

The impact for business owners is two-fold:

  1. Different accounting treatments for COGS have material impacts on cash flow.
  2. The choice of how to account for value-added enhancements may have a material impact on an IIoT firm’s working capital. 

At first glance, this appears to be a mundane accounting example. But a closer look indicates how it can affect an M&A transaction.

Choosing Option B over Option A is more common because it’s simpler and more akin to cash accounting, which is commonly used by small and medium-sized businesses. However, Option B will suppress the cash flow of a business while the device is being modified and improved, which can sometimes take several months. If a firm chooses Option B, it will result in a lower cash flow number, and then make the money back in its reported gross margin when the device is sold to a customer later.

The key element of this analysis is time. In Option B, the firm is showing expenses before the revenue from those expenses appear. And it is showing these expenses in a scale multiplied by the number of devices it sells, which can be in the thousands. At scale, these impacts on the cash flow reporting of the business can become material and directly impact EBITDA, which is the most common metric buyers use to determine valuations for private equity companies. As long as the time to make value added enhancements is longer than one reporting period (usually one month), then this over-reporting of expenses will occur.


In this example ignoring the value-added enhancements allowed the firm to increase its gross margin by 11%, which would seem desirable, but reduced EBITDA by 50%. This in turn reduced the total enterprise value of the company by 50%. This is a highly material change for a firm that is operating identically in both options A and B, but reporting financials differently. Said differently, constantly expensing every single cash item on an income statement will naturally suppress EBITDA, and companies should avoid accounting for expenses that suppress EBITDA when they can. IIoT firms have a unique opportunity to do this. 

Working Capital Calculations 

In many purchase agreements, it’s specified that 30 to 90 days after closing there’s an “adjustment” of working capital. This means either party may transfer funds to the other to compensate for any excess or deficiency in the working capital present in the business on the closing day.

Working capital is calculated by deducting current liabilities from current assets. A working capital mismatch happens when the difference between assets and liabilities is greater than expected. In Option B above, we indicated how underreporting assets can suppress EBITDA and lower the enterprise value of a transaction. If a seller performs the accounting laid out in Option B, there is a risk they would have to return a portion of their cash on close proceeds to the buyer 90 days after close. This can become material based on the structure of the deal. Learn more about transaction structures.

Continuing with our examples above, there are two options. One is where the company undergoes a change of control transaction for $400 and the other is where the company sells for $200. In Option A, the seller increased their current assets while value-added enhancements were being added to the IIoT device. Option B did not account for this increase in assets. So Option A will result in a higher working capital calculation than Option B. 

It’s already indicated in this report that Option B can lead to a 50% reduction in TEV to the seller. In addition, Option B also underreports working capital. If a company sells for $200 and 50% of that TEV is provided in cash at closing, the selling shareholders receive $100. If the seller has inadvertently underreported working capital by $20, the buyer will request that $20 as a “adjustment” 30 to 90 days after closing. This means the seller will be at risk of losing 20% of their cash on close due to inaccurate balance sheet accounting.  

There are unique complexities to balance sheet accounting for IIoT devices. This same level of complexity does not exist in IT services, professional services, e-commerce, and many other business models. This is mostly due to the assembly line-type process where IIoT devices act as manufacturers of intangible assets on top of physical goods. 

In many private companies, especially smaller ones, the working capital figures may not be updated regularly or accurately. This can lead to differences between reported and actual figures, impacting the perceived financial health of the business during acquisition negotiations.

Intangible Drivers

Supply Chain Risks

During an IIoT M&A transaction, changes in ownership or strategic direction can disrupt existing supplier relationships. Onboarding new suppliers could lead to delays in procurement, increased costs, or quality issues. Integrating two companies’ supply chains involves aligning procurement processes, inventory management systems, and logistics networks.

Cybersecurity vulnerabilities are also a threat, as IIoT systems are susceptible to data breaches and ransomware attacks during integration if security measures are not robustly implemented. Buyers seek to understand the volatility in a seller’s supply chain. The more steps a seller can take to reduce its supply chain volatility, the less of a negative impact it will have on an M&A transaction. 

Customer Contract Terms and Relationships

Contractual customer relationships are unique in the IIoT business. The basic IIoT firm and customer transaction involves customers paying for hardware, software, services, and support, resulting in complex dynamics that might include multiple purchases. Due to this intricate relationship, there are clear indicators that highlight which contractual relationships create the most value in an M&A transaction.

IIoT Firm – Revenue Models

The initial transaction between an IIoT firm and its customer is the identification and procurement of the hardware device. Whether this device is manufactured in house by the IIoT firm or sourced from another provider, the baseline of costs between the IIoT firm and the customer is defined in this purchase. IIoT devices are complex, and any standard scope of work typically requires numerous IIoT devices. IIoT firm and customer payment models for the hardware devices fall into one of two categories: the complete sale or acquisition of the IIoT device and the leasing or renting of the device. 

In the complete sale of an IIoT device, the IIoT firm sells the device to its customer at the cost to make or acquire, plus a profit margin. The customer bears the entire cost of the device. This results in firms receiving an immediate return on investment (ROI) upon selling the device, but does not generate recurring revenue. 

In the leasing, renting, or lending device model, the IIoT firm maintains ownership of the device on its balance sheet, and charges the customer regular payments, often with interest or a markup. The greatest challenge for the IIoT firm in this example is the delayed recovery of initial device costs. It often takes years for the IIoT firm to fully recoup the costs of the asset, and even longer to make a profit from leasing, renting, or lending the device. As a result, this creates a much higher financial liability for the IIoT firm in the near term, but better unit economics overall, once it reaches a critical mass of devices generating sufficient recurring revenue to fund its growth. 

Leasing, renting, or lending devices is more valuable than selling them. Multiples on recurring revenue consistently drive greater returns for firms in M&A transactions. However, leasing, renting, or lending the devices alone is insufficient to command greater value. Attention should also be given to the minimum order quantities and contract durations associated with either model. 

Selling devices can still create value. Many firms lack the necessary credit or equity capital needed to lease a significant amount of devices to customers. Selling devices also generate revenue from implementation, maintenance, support, and services. These ancillary services are sometimes included in the leasing price and sometimes sold separately.

Average Order Quantities and Contract Length 

Valuations of recurring revenue are measured over years in IIoT M&A transactions. Therefore, if a contract with a customer is leased and annual, it does not carry a premium compared to selling the device outright. Contracts must exceed one year to carry a premium in valuation. The value of a contract increases significantly from two to 10 years, as indicated in the graph below. IIoT firms benefit from structuring contracts with customers as long as possible but should avoid negotiating terms exceeding 10 years, as they diminish in value compared to two to 10 years.

A second component of the contract value is the minimum order quantities (MOQs) for the devices themselves. As already established, IIoT firms’ revenue models revolve around selling or leasing devices and charging recurring fees. IIoT firms are well served to negotiate high minimums with their customers to increase contractual value. This approach allows IIoT firms to offer improved services, software upgrades, and other benefits when customers commit to higher MOQs.

Combining high MOQs with longer contract commitments creates the greatest customer relationship value for an M&A transaction. 

Additional Material Contractual Terms 

Bundled Contracts

When a company orders a significant number of IIoT devices from a vendor, they pay an initial fee per device and commit to an annual fee per device for several years. In addition to shipping the devices, the vendor provides installation services at an extra cost per device. These bundled contracts consolidate the costs of hardware licenses, software licenses, and essential services into a single agreement.

During the due diligence phase of IIoT M&A transactions, acquiring companies evaluate the existing contracts and commitments of the target companies. Bundled contracts for IIoT devices represent ongoing financial obligations and commitments such as annual fees per device over several years. These commitments can impact the financial projections and cash flow of the acquirer post-acquisition. Bundled contracts often come with specific terms and conditions, including SLAs that guarantee performance metrics such as uptime, response times for support issues, and the reliability of data transmission. These contracts may also include penalties or liabilities in the case of non-performance or breaches. Understanding these contractual obligations helps in assessing the overall financial health and sustainability of the target company’s IIoT investments.

Ownership of Intellectual Property 

In M&A transactions, an IIoT company’s intellectual property (IP) constitutes a substantial portion of a company’s overall value. Buyers’ assessments focus on evaluating the strength, scope, and uniqueness of the IIoT company’s IP portfolio to understand how it contributes to market differentiation, potential revenue generation, competitive advantage within the IIoT sector, and financial stability post-acquisition. 

Buyers look for synergies between their existing IP portfolio and the IIoT company’s portfolio to assess how they would enhance their product offerings and expand their market reach. They analyze the revenue potential of IP assets, where licensing agreements, royalties, and joint ventures maximize their return on investment through strategic IP commercialization strategies. 

The assets of IIoT companies may include patents covering technologies like sensors, data analytics algorithms, and cybersecurity measures; design patents for the unique physical designs of their hardware products; and trademarks to safeguard their brand identities. While copyrights protect software, documentation, and user interfaces. Trade secrets play a crucial role in protecting confidential information such as proprietary algorithms, customer lists, and manufacturing processes. 

One notable M&A example of this is General Electric’s (GE) acquisition of Grid Solutions, a subsidiary of Alstom, in 2015. Through this acquisition, GE gained access to Alstom’s extensive IP portfolio related to electrical grid technologies, including patents, trademarks, and proprietary technologies. The acquired IP enabled GE to enhance its product offerings as it included innovations in smart grid solutions, digital monitoring systems, grid automation technologies, and advanced analytics for power networks.

IIoT companies should maintain ownership of their intellectual property and clearly define their portfolio. 

Data Ownership

IIoT firms generate vast amounts of data that can be analyzed to gain actionable insights. This data enables real-time monitoring and control of machinery, predicting when maintenance is needed before a breakdown occurs, therefore cutting costs and minimizing downtime. IIoT data also enhances workplace safety by monitoring environmental conditions and employee health, enabling timely interventions to prevent accidents. 

Data is a strategic asset in IIoT. Companies with ownership of valuable data can explore various monetization strategies, such as selling data insights, licensing data access, or using data-driven services to generate additional revenue streams. For M&A transactions, acquiring ownership of valuable data assets can strengthen a company’s market position and expand its capabilities. Owning data facilitates smoother integration of systems and technologies post-acquisition. It enables the combining of data sets, integration of analytics platforms, and development of new data-driven innovations that capitalize on synergies between the acquiring and acquired companies.

A relevant M&A example involves Siemens acquiring Mendix in 2018. Siemens not only acquired Mendix’s technology but also gained access to valuable data generated by IIoT applications built on the Mendix platform. Siemens utilized this data to enhance its digitalization offerings, improve operational efficiency for its industrial customers, and accelerate innovation in IIoT solutions.

IIoT firms should own or have the ability to use their customer’s data, even if it is obfuscated. 

The Material Impact of Unique Industrial Internet of Things M&A Drivers 

It is crucial for business owners considering the sale of their Industrial Internet of Things (IIoT) business to understand the four M&A drivers identified in this report: income statement and balance sheet adjustments, working capital calculations, supply chain risks, and customer relationship measures. Each driver plays a pivotal role in shaping the strategy of an M&A transaction for IIoT firms.

By strategically addressing these drivers, owners can position their company to attract higher valuations and unlock greater value for shareholders in the sale process.
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SOURCES

DIGI – Discusses IIoT basics, use cases, and applications ↗

Jahani and Associates – Discusses transaction structures and its impact on seller liquidity in M&A ↗


Acquisition of Grid Solutions by General Electric ↗

Acquisition of Mendix by Siemens  ↗

Defining the Battlegrounds of the Internet of Things ↗

DELOITTE – Intelligent IoT ↗

Aug
03

Mobile Robotics

Mobile Robotics

Over $200 billion was deployed by investors in the mobile robotics sector between Q1 2020 and Q2 2024. Mobile robotics include advanced robotics and drones used in logistics, military and defense, agriculture, manufacturing, and various other industries. The sector has become critical as businesses seek advanced technologies to improve efficiencies and reduce costs while remaining at the forefront of innovation. 
The majority of capital deployment in the sector was conducted by US-based investors. Chinese investors also contributed a significant amount of capital. This could be due to the military applications of the technology and the need for the world’s two largest economies to remain globally competitive. Venture capital transactions accounted for significant deal count and capital invested in mobile robotics, highlighting the growth potential in the sector, demand for early stage transactions, and the investments made in innovation.  
An increase in government funding and zero-interest-rate policy caused by the pandemic resulted in an increase in deal count and capital invested in the sector in 2020 and 2021. In 2023 and the first half of 2024, lower capital deployment and deal count were observed, as markets adjusted to increasing interest rates. Since Q3 2023, capital deployment has increased, indicating a strengthening of the mobile robotics capital market. Shareholders in the sector should be aware of the upward trend in capital market activity and the investment opportunities this presents. 
  • Between Q1 2020 and Q2 2024, $218 billion was deployed across 17,723 transactions in the mobile robotics sector. The average transaction value was $12 million, highlighting the volume of transactions conducted in the lower and lower-middle markets.  
  • The most significant deployment of capital, $23 billion, occurred in Q1 and Q3 of 2021 with the largest deal count occurring in Q1 of 2022—1,288 announced transactions. This period coincided with low interest rates and loose monetary policies to combat the economic effects of the pandemic. 
  • There is a negative trend in the number of transactions conducted per quarter. However, capital investment has increased steadily since Q3 2023 with significant capital deployed in Q1 and Q2 of 2024.     
  • While the deal count shows variability, it generally remains above 600 transactions per quarter. This consistency indicates a stable interest in deal-making, even as the investment amounts fluctuate.
  • Venture capital investors accounted for 63% of the deal count in the mobile robotics sector and contributed $46 billion of investments, with an average deal size of $3 million. The deal count and average deal size indicated the appetite to invest in early stage transactions and the growth potential of the sector. Additionally, they demonstrate high demand for innovation and development within the mobile robotics sector. 
  • Private equity firms and other financial acquirers conducted 40% of mobile robotics transactions and contributed 25% of capital deployed in the sector. This could indicate high demand for roll-ups and acquisitions of key technologies in the sector as well as the abundance of established companies.
  • Mergers and acquisitions conducted by strategic acquirers account for $45 billion of the capital invested in the sector but just 5% of the total deal count. The average deal size of $70 million could indicate the desire for larger mobile robotics M&A transactions with established technologies and customer relationships. 
  • US-based mobile robotics investors led the deployment of capital into the sector, with over $87 billion, and 40% of the capital development. This could be due to a variety of factors, including a large number of early stage companies in the US and demand for onshoring technology with military and defense potential.   
  • China, while significantly less than the US, holds a notable portion of the capital deployment of approximately $59 billion. The deal count for China is also relatively high, suggesting a healthy level of capital market activity. 
  • Other countries such as the United Kingdom, Germany, and Israel made significant investments in the mobile robotics sector, all contributing 4% of capital deployed over the period. 
  • The rest of the world exhibits a noticeable spike in deal count, but a small share of the capital invested of under 20%. This implies a wide distribution of smaller deals across various countries not individually listed. These smaller markets collectively engage in a significant number of mobile robotics transactions, but each deal tends to be small, reflecting diverse capital market activities.

Deal Spotlight:

NIMBLE

The Company

Nimble is a US-based designer and creator of robotic systems. The technology automates piece-picking, sorting, and packing systems for the e-commerce industry. The company’s system integrates warehouse infrastructure and uses AI, computer vision, and remote human-in-the-loop supervision to create smart robots. Nimble enables clients to reduce costs and staffing churn while boosting efficiency in fulfillment workflows.

Nimble raised $65 million of Series B venture funding in a deal led by Cedar Pine on March 1, 2022. The pre-money valuation for the round was $730 million. GSR Ventures China, DNS Capital, Breyer Capital, and other undisclosed investors also participated in the round. 

Investors based in the US and China have deployed significant capital into the mobile robotics sector, particularly in early stage companies. This may be due to the military applications of robotics and drones and the range of applications in logistics, manufacturing, agriculture, and a variety of other sectors. The sector will continue to grow in prominence as well-funded early stage companies mature and conduct further capital market activity. 
Founders and shareholders in the mobile robotics sector should be mindful of the rising trends in deal count and capital invested in the sector and the opportunities to raise capital and conduct M&A transactions. 
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Sources: Pitchbook Data, Mordor Intelligence, McKinsey & Company, Future Marketing Insights.

Aug
01

Minerals and Mining Transactions and Valuations

Minerals and Mining Transactions and Valuations

Between Q1 2020 and Q2 2024, over $380 billion was deployed across 3,799 M&A transactions in the minerals and mining sector, with an average deal size of $103 million. Companies in the mineral and mining sector typically trade at an enterprise value to revenue multiple range between 1x and 4x and an enterprise value to EBITDA multiple between 4x and 10x.
The majority of investments in minerals and mining were made by western economies like the US, Canada, and Australia to secure resources for technology, renewable energy, and security. These investments aim to ensure supply chain stability, economic growth, job creation, and innovation, and reduce foreign dependence.
The minerals and mining industry encompasses the exploration, extraction, processing, and distribution of mineral resources.
This industry is critical for providing raw materials used in a wide range of products including electronics, machinery, construction materials, and energy solutions. Key minerals include precious metals like gold and silver, base metals such as copper and aluminum, and industrial minerals like coal and phosphate. The sector is heavily regulated to ensure environmental sustainability and worker safety.
  • The valuation multiples are based on a sample set of private M&A transactions and publicly listed minerals and mining companies in the sector. The data was collected on July 19, 2024.
  • The sample set typically trades at an enterprise value to revenue multiple range between 1x and 4x, staying consistent in this range as the enterprise value of the business increases.
  • Enterprise value to EBITDA multiples varied substantially, typically ranging between 4x and 10x. The average enterprise value to EBITDA multiple increased significantly as the enterprise value of the company surpassed $100 million.
  • Achieving positive EBITDA in the minerals and mining industry is challenging due to its capital-intensive nature, requiring significant capital expenditure and long-term investment. The sector faces high operational costs, fluctuating commodity prices, regulatory compliance, geopolitical risks, and ongoing exploration and development needs, all of which impact profitability and operational efficiency. Consequently, significantly higher multiples are often placed on larger companies, having shown resilience and growth.
  • Between Q1 2020 and Q2 2024, over $380 billion was deployed across 3,799 M&A transactions in the minerals and mining sector by global firms, with an average deal size of $103 million.
  • Q2 2024 reflects the period with the most significant deployment of capital, $56 billion, while Q4 2021 experienced the highest deal count, 236.
  • The average deal count has remained at approximately 200 transactions per quarter. Notable exceptions were seen in Q2 2020 and Q3 2020 in the early phases of the pandemic. 
  • The largest completed transaction was the full acquisition of Newcrest Mining by Newmont, for $26.6 billion, which was completed on November 6, 2023.
  • Australia, the United States, and Canada were the top three countries for capital investment in minerals and mining M&A transactions, receiving 22% ($86 billion), 21% ($84 billion), and 20% ($78 billion) of the total capital invested, respectively.
  • Canada, the United States, and Australia lead in the number of deals conducted, with Canada having the highest percentage at 22% (852 deals), followed by the United States at 21% (777 deals), and Australia at 15% (574 deals).
  • Western markets such as Australia, the United States, and Canada have significantly invested in the minerals and mining sector, highlighting the strategic importance of securing natural resources. This trend shows their efforts to reduce dependence on other regions amid geopolitical instability, trade conflicts, and global resource competition. By investing heavily, they aim to ensure a stable supply chain for critical materials, essential for economic stability and technological advancement. 
  • The United Kingdom ranks fourth in both capital invested and deal count, with 13% ($50 billion) of capital investment and 8% (190 deals) of the total deal count.
  • M&A transactions were the most significant type of transaction, leading in both capital invested ($341 billion) and deal count (2949 deals). M&A transactions were also the largest on average, with an average transaction size of $115 million.
  • In the minerals and mining industry, M&A is favored likely for rapid resource acquisition, achieving economies of scale, and geographical diversification. These benefits enable quick access to valuable deposits, cost reduction through efficiency, and risk mitigation by operating across multiple regions, ensuring long-term sustainability and profitability.
  • Buyout and leveraged buyout transactions recorded the second-highest capital invested at $48 billion across 616 deals with an average deal size of $77 million. This was followed by corporate divestiture at $39.48 billion capital invested across 587 deals with an average transaction size of $67 million.
  • Secondary buyouts had a relatively low amount of capital invested at $7 billion but carried the second-largest average transaction size at $111 million. 

Deal Spotlight:

BLACKROCK METALS

The Company

BlackRock Metals engages in mining iron, titanium, vanadium, and other commodities in North America. The firm was founded in 2008 and is based in Montreal, Canada.

Strategic Resources completed a reverse takeover of BlackRock Metals on March 31, 2023. As part of the deal, Strategic Resources acquired all of BlackRock Metals’ issued and outstanding shares. Consequently, BlackRock Metals has become a wholly owned subsidiary of Strategic Resources. 

At the time of the deal, BlackRock Metals had an implied enterprise value of $102 million. The revenue of BlackRock Metals at the time of the acquisition was undisclosed but the EBITDA of the business was $29 million, resulting in an enterprise value to EBITDA multiple of around 3.5x.

M&A activity in the minerals and mining sector is increasing, with strong market fundamentals and strategic opportunities driving growth. High demand for critical minerals essential for green technologies and infrastructure projects has created significant investment interest.
Companies are leveraging acquisitions to enhance their resource base, optimize operations, and achieve scale efficiencies. Additionally, favorable commodity prices and a focus on sustainability are incentivizing deals. 
Western countries like the US, Canada, and Australia are significantly investing in the minerals and mining sector to secure essential resources for technological advancements, renewable energy, and national security. These investments ensure the stability of supply chains, promote economic growth, and support the transition to sustainable and green energy solutions. By securing reserves, these nations aim to reduce dependence on foreign imports, create jobs, and foster innovation in emerging technologies. Additionally, these investments align with strategic goals to combat climate change and enhance resilience against global market fluctuations.
Download PDF

SOURCES

Strategic Resources Financial Information ↗

PR Newswire – Strategic Resources Closes Reverse Takeover of BlackRock Metals ↗


MINING.COM ↗

Deloitte – Mining M&A in an altered world ↗

EY – Top 10 business risks and opportunities for mining and metals in 2024 ↗

PITCHBOOK DATA ↗

Jul
13

Technology-Enabled Consulting Services M&A Transactions and Valuations

Technology-Enabled Consulting Services M&A Transactions and Valuations

Between Q1 2020 and Q2 2024, $115 billion was deployed by acquirers in the technology-enable consulting services sector. Technology-enabled consulting services involve hiring external experts to provide strategic advice, management, and implementation of information technology solutions. These services help businesses optimize their IT infrastructure, enhance cybersecurity, and implement new technologies without maintaining an in-house IT department, offering cost-efficiency and specialized expertise.

Most transactions conducted and capital invested were by US and European-based acquirers. Additionally, strategic acquirers deployed over 75% of the capital invested. Median deal size and valuation multiples have steadily increased since Q3 2024, indicating an uptick in demand for acquisitions in the sector.
Technology-enabled consulting services company owners should be aware of exit opportunities presented by strategic acquirers from the US and Europe.
  • The valuation multiples are based on a sample set of publically listed outsourced IT consulting services companies and M&A transactions in the sector. The data were collected on July 4, 2024.
  • The sample set trades at an enterprise value to EBITDA multiple range of between 9x and 18x, with an increase in average multiples as the enterprise value increases.
  • Average enterprise value to revenue multiples ranged from 1x to 3x.
  • The median transaction size has ranged from a high of $16 million in Q3 2021 to a low of $3 million in Q2 2020. Median transaction size is a better indicator of the transaction activity than simple averages as this accounts for outliers and large transactions.
  • Median transaction size decreased by over 50% between Q4 2021 and Q3 2023. This corresponds to a period of increased interest rates and a downward trend in capital market activity. 
  • Q2 2024, and the two prior quarters, saw a notable increase in median transaction size, indicating an uptick in valuation and capital market activity.
  • Between Q3 2020 and Q2 2024, $115 billion was deployed across 2,150 technology-enabled consulting service acquisitions. The average transaction value was $54 million, highlighting the volume of transactions conducted in the middle and lower-middle markets.
  • The most significant deployment of capital, $17 billion, occurred in Q3 of 2022 with the largest deal count occurring in Q3 of 2021, 151 transactions.
  • There is a negative trend in the number of transactions conducted per quarter. However, capital investment has increased steadily since the start of 2023 with significant capital deployed in Q2 2024.
  • While the deal count shows variability, it remains above 100 deals per quarter, except for the significant drop in Q2 and Q3 2020. This consistency indicates a stable interest in deal-making, even as the investment amounts fluctuate.
  • Hitachi’s acquisition of GlobalLogic for $9.6 billion, completed on July 13, 2021, was the largest transaction in the sector.
  • Capital invested M&A transactions was dominated by strategic acquirers. They contributed 73% of all capital in the sectors while conducting 47% of all transactions.
  • Large strategic acquirers in the technology-enabled consulting service sector include Accenture, Deloitte, and Cognizant Technologies.
  • Private equity firms and other financial acquirers conducted 53% of M&A transactions and contributed 71% of capital deployed in the sector.
  • The most active financial acquirers in the sector include NewSpring Capital, General Atlantic, and Evergreen Services Group.
  • US-based technology-enabled consulting service acquirers dominated the capital invested, with over $75 billion across 39% of the deals in the category. This could be due to a variety of factors, including a large number of acquisition targets or demand for onshore or nearshore solutions due to disrupted supply chains and rising geopolitical tension. 
  • European acquirers contributed 40% of all M&A transactions in the sector but less than 30% of capital invested. This indicates an appetite for smaller transactions and significant activity in the low and middle markets. 
  • The rest of the world exhibits a noticeable spike in deal count, but an exceedingly small share of the capital invested. This implies a wide distribution of smaller deals across various countries not individually listed. These smaller markets collectively engage in a considerable number of technology-enabled consulting service transactions, but each deal tends to be small, reflecting diverse capital market activities.

Deal Spotlight:

MAVEN WAVE

The Company

Maven Wave is a Chicago-based management and technology consulting services company that offers cloud computing services, user experience, and design consultancy. Additionally, they provide big data and outsourcing consulting services to their clients, helping facilitate the shift to digitalization.
Atos intended to supplement its cloud solutions for applications, data analytics, and machine learning in hybrid and multi-cloud platforms through the acquisition.

The acquisition, valued at $189 million in cash, is rumored to include potential additional payments based on future sales milestones. For more information on how transaction structures impact seller liquidity, see Jahani and Associates’ article here.

Outsourced IT consulting services involve external experts providing strategic IT advice, management, and implementation, and helping businesses optimize technology infrastructure and cybersecurity without maintaining an in-house IT department.

Founders and shareholders of outsourced IT consulting services companies should be mindful of exit opportunities. Median transaction size has increased steadily in recent quarters and EBITDA multiple range of between 9x and 18x. The most active acquirers in the sector are strategic acquirers who contribute the majority of capital and deal flow and are mostly based in the US and Europe.
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Sources: Pitchbook Data, Jahani and Associates (1), (2).

Jul
12

Freight Forwarding M&A Transactions

Freight Forwarding M&A Transactions

Over $40 billion was deployed between Q1 2020 and Q1 2024 by freight forwarding acquirers. Freight forwarding is a specialized service that manages the transportation of goods and the pricing of the logistics sector. Acting as intermediaries, freight forwarders coordinate the movement of cargo across various transportation modes over land, sea, and air. Disruptions in global supply chains and escalating geopolitical tension have increased the demand for onshoring logistics services, which has spurred capital market activity.
The majority of capital deployed was by US-based acquirers. They contributed 25% of the deal count and over 60% of the capital deployed. Additionally, strategic acquirers deployed over 77% of the capital invested. Freight forwarding companies should be aware of exit opportunities presented by US-based strategic acquirers.
The disruptions in international supply chains and zero-interest-rate policy caused by the pandemic resulted in an increase in deal count and capital invested in the sector in 2021 and 2022.
Capital deployment in the sector since Q1 2023 has decreased significantly. Increased interest rates have reduced the affordability of large M&A transactions, and the average deal size has dropped to approximately $7 million. The deal count has remained high showcasing exit opportunities available for smaller freight forwarding businesses.
  • Between Q1 2022 and Q1 2024, $37 billion was deployed across 352 logistics. The average transaction value was approximately $104 million, and the median value was $58 million, highlighting the volume of transactions conducted in the middle market.
  • Q1 2023 saw a substantial increase in deal count to 27, with capital investment peaking at $10 billion, the highest in the period.
  • Deal counts fluctuated between 17 and 20, with capital investment dropping significantly post-Q1 2023, reaching only $496 million in Q4 2023 and about $234 million in Q1 2024. Deal counts rose again to 26 in Q1 2024.
  • The largest transaction in the sector was Apollo Global Management’s $5.2 billion acquisition of Atlas Air Worldwide Holdings. The acquisition was completed in March 2023.
  • Between Q2 2023 and Q1 2024, capital investments dropped significantly, but over 80 transactions occurred with an average deal size of $7 million. The increase in interest rates has meant that larger M&A transactions and heavy investments in research and development have become unaffordable. As a result, smaller acquisitions have become more attractive to strategic and financial acquirers.
  • The number of transactions conducted was equally distributed between strategic and financial acquirers. Financial investors deployed approximately $8 billion across 162 transactions. This indicated the appetite for smaller transactions by private equity firms and other financial acquirers.
  • Large strategic acquirers in the freight forwarding sector include A.P. Moller- Maersk, DHL Group, and Kuehne+Nagel.
  • Strategic investors within the logistics industry dominated capital deployment with $29 billion and 54% of M&A transactions in the sector. The large average transaction size indicates demand for middle-market acquisitions.
  • The most active financial acquirers in the sector include AEA Investors (eight transactions), the Jordan Company (six transactions), and ATL Partners (five transactions).
  • US-based acquirers dominated the capital invested into freight forwarding acquisitions, with over $23 billion, and 62% of the capital deployment in the category. The pandemic and heightened geopolitical tension have increased pressure on supply chains. The demand for onshoring supply chain capabilities and specific solutions to meet the unique needs of the US logistics market drove the increase in M&A activity by US-based acquirers.
  • European acquirers contributed significantly with 45% of the deal count and 17% of the capital invested in the sector. The lower transaction size average of over $40 million signals an appetite for lower middle market transactions. The M&A activity highlights a demand to grow domestic supply chain capabilities.
  • East Asian investors deployed $7.5 billion across 53 transactions in the freight forwarding sector. This suggests that while the total transaction amount is small, there are a relatively larger number of deals, indicating frequent but smaller acquisitions. This could be due to a thriving startup scene where smaller, earlier-stage transactions are more common.
  • The rest of the work exhibits a noticeable spike in deal count, approximately 15%, but a very small share of the capital invested. This implies a wide distribution of smaller deals across various countries not individually listed. These smaller markets collectively engage in a significant number of freight forwarding transactions, but each deal tends to be small, reflecting diverse capital market activities.

Deal Spotlight: 7LFREIGHT

The Company

7LFreight is a logistics technology company with rate management software for ocean and air freight forwarding businesses. The company’s software automates tasks on one central platform as well as maintaining air and surface rates, allowing freight forwarders to provide clients with instant quotes. The booking platform connects more than 30 airlines and upwards of 10,000 freight forwarding offices internationally. The acquisition bolsters Freightos’s presence in North America and technology capabilities.

For more information on how transaction structures impact seller liquidity, see Jahani and Associates’ article here.

Source: Investing.com

Global supply chains are rapidly evolving as geopolitical tensions increase in a post-pandemic world. The need to expand domestic capabilities has driven freight forwarding M&A activity in the US and Europe.
The average transaction size in freight forward transactions in Q1 2023 was $7 million across 80 transactions. This shows the level of lower-middle capital activity in mergers and acquisitions and the opportunities available for smaller companies. Freight forwarding, the management of goods and pricing of the logistics sector, will continue to develop in importance as the US and Europe look to onshore more supply chain services.
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Jul
04

Investments in Industrials, Energy, and Resources by Investors in the GCC

Investments in Industrials, Energy, and Resources by Investors in the GCC

Gulf Cooperation Council (GCC) investors deployed over $800 billion into the industrial, energy, and resource sectors between 2020 and Q3 2023.
The GCC is strategically pivoting away from oil and gas dependence, driven by the goal to promote long-term economic resilience, counteract fluctuating oil prices, and embrace sustainable development. Initiatives such as Saudi Arabia’s Vision 2030 is one example of the region’s commitment to diversification, fostering innovation and sustainability while building robust, knowledge-based economies.
  • Between Q1 2020 and Q3 2023, approximately $390 billion was invested into industrial companies by GCC investors over 1,660 deals. The average deal size in the sector was nearly $250 million.
  • There was a significant spike in capital invested in Q2 2020, reaching $93 billion. This period coincides with the early stages of the COVID-19 pandemic, where there was heightened economic uncertainty, and investors were likely seeking to capitalize on distressed assets and critical infrastructure projects that required substantial capital but involved fewer transactions.
  • Deal count for the period peaked in Q1 2022, reaching 178 deals, despite a relatively lower capital investment of $11 billion. In spite of active deal-making, the industrial sector saw smaller-scale investments by GCC investors, leading to the relatively low total capital deployed. This trend reflects investors’ strategic shift towards smaller deals amid the geopolitical uncertainty, high inflation, and looming interest rate rises, whereby companies focused on mid-market deals to leverage their healthy balance sheets for strategic acquisitions, avoiding the risks associated with larger transactions.
  • There was a notable decline in capital investment from Q1 2022 to Q3 2022. This drop could be related to macro-economic reasons like tightening of global monetary policies, including the rapid increase in interest rates by the US Federal Reserve, which affected market liquidity and investor sentiment.
  • The first two quarters of 2023 saw a resurgence in both capital investment and deal count, with a notable peak in Q2 2023 at $248 billion and 138 deals. This resurgence can be linked to the continued high oil prices, fiscal surpluses, and active government initiatives that the region leveraged to support economic diversification and industrial development in the GCC through increased investment in the industrial sector.
  • Between Q1 2020 and Q3 2023, approximately $128 billion was invested into the energy sector by GCC investors. The average deal size was approximately $177 million.
  • The capital investment peaked at $21 billion in Q2 2020, despite a relatively low deal count of 31. This significant investment amount can be attributed to large-scale strategic acquisitions and projects initiated in response to the early stages of the COVID-19 pandemic. The energy sector likely saw substantial government interventions aimed at securing and stabilizing energy supplies during uncertainty.
  • Another notable peak occurred in Q2 2021, with capital investment reaching $18 billion across 55 deals. This spike aligns with the global recovery phase from the pandemic, where oil prices began to stabilize and increase, leading to renewed confidence and investment in the energy sector.
  • Between Q1 2020 and Q3 2023, approximately $132 billion was invested into material and mining companies by GCC investors in 322 deals.
  • In Q2 2020, there was a major spike in capital invested, reaching $89 billion with only 16 deals. This likely reflects large-scale, strategic acquisitions in response to the early COVID-19 pandemic disruptions.
  • The third quarter of 2023 experienced another significant increase in capital investment, reaching $23 billion across 18 deals. Investment in material and mining sectors is critical as the GCC countries continue to push towards economic diversification away from oil dependence, capitalizing on the global shift towards sustainable and renewable energy sources​.
  • GCC investors favored mergers and acquisitions (M&A), which contributed to 58% of the total capital invested. The significant emphasis on M&A reflects the strategic approach to acquiring established businesses and assets within the industrials, energy, and resources sectors, likely driven by diversification efforts and market expansion.
  • Between 2020 and Q3 2023 the industries leading the deal count were financials, industrials, and information technology sectors. Financials were driven by sovereign wealth funds like PIF and ADIA, while industrials benefitted from regional industrial growth plans. The IT sector surged due to digital transformation initiatives.
  • Private investment in public equity (PIPE) deals accounted for 22% of the total capital, totaling $135 billion. PIPE deals are attractive because they provide liquidity and capital to public companies without the need for a public offering, which can be advantageous in uncertain market conditions​.
  • Private equity investments constituted 11% of the total capital, amounting to $68 billion. These investments involve direct funding into private companies, underscoring GCC investors’ interest in supporting and partaking in the growth and development of private businesses within the specified sectors.
  • A significant contributing factor to the data skew is that valuations for companies are generally lower at earlier stages, whereas PIPEs and M&As typically correspond with more mature businesses. Thus, although the venture capital proportion is low, there may be a high deal count but lower valuations.
  • A substantial proportion of GCC investors’ capital (29%) was deployed in the United States, totaling $141 billion. This significant investment reflects the attractiveness of the US market due to its stability, diverse opportunities, and strong legal framework.
  • Saudi Arabia, Bahrain, and the United Arab Emirates (UAE) received substantial investments, accounting for 19% ($91 billion), 3% ($14 billion), and 10% ($47 billion) of the total capital deployed, respectively. These countries likely benefited from regional investors’ preferences, capitalizing on the GCC’s proximity and familiarity with the local market dynamics as well as participating in these regions’ efforts to diversify away from oil dependency.
  • Other noteworthy countries, including Germany (9%), the United Kingdom (5%), China (5%), and India (4%), also attracted notable investments from GCC investors. These investments are driven by the search for strategic opportunities in diverse markets, enhancing global reach, and securing assets in high-growth sectors​.
The data highlights a dynamic investment landscape by GCC investors across industrial (construction, engineering, defense, and machinery, etc.), energy (oil, gas, renewables, and utilities, etc.), and mining sectors (precious metals, forestry, and agriculture, etc.). Industrial investments showed volatility, with significant peaks in Q2 2020 and Q3 2021. The energy sector witnessed substantial investments in Q2 2020 and Q1 2022. Material and mining sectors experienced varying capital injections, reflecting changing market dynamics.
Mergers and acquisitions dominated deal types, accounting for 58% of total capital, emphasizing a strategic focus on consolidation. Geographically, the United States attracted the most significant share (29%), indicating its appeal to GCC investors. The data clearly highlights how the GCC is making a significant effort to diversify away from oil dependency into other core sectors like industrials, energy, and resources, through diversified investment vehicles.
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SOURCES

GULF LEADERS CIRCLE ↗

Discusses the significant foreign direct investment
(FDI) in GCC countries, particularly highlighting the
investments in Saudi Arabia and the UAE in 2022.

UNCTAD WORLD INVESTMENT REPORT 2023 ↗

Provides insights on global investment trends,
including greenfield investments and the SDG
investment gap in developing countries.

DELOITTE MIDDLE EAST INVESTMENT SENTIMENT REPORT 2022 ↗

Examines the investment sentiment in the GCC,
highlighting factors driving investment decisions and
the outlook for 2025.

ARDENT ADVISORY ↗

Offers a detailed analysis of the healthcare and
pharmaceutical sector in the GCC, including
investment trends and opportunities.

PITCHBOOK DATA INC. ↗

Provides data on capital investments by GCC
investors in various sectors and countries, including
detailed breakdowns by deal type and recipient
country.

PWC MIDDLE EAST ↗

Reports on capital market activities in the GCC,
including IPOs and M&A trends.

IMF BLOG ↗

Discusses infrastructure investments in the
GCC and the importance of public investment
management frameworks.

PWC MARKET OVERVIEW ↗

Highlights strong market performance, driven by
increased IPO activity in Saudi Arabia, and anticipates
continued growth in capital markets across the GCC.

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May
23

Hospitality Technology and Property Technology Transactions

Hospitality Technology and Property Technology Transactions

Since 2020, the hospitality industry has witnessed notable investments in technology solutions to adapt to the changing landscape and meet the evolving needs of guests. In 2021, the global hospitality technology market reached approximately $19 billion worldwide and is forecast to grow to $133.7 billion by 2031.
Similarly, over the same period the real estate industry has experienced significant investments in technology solutions to drive innovation, improve operational efficiency, and adapt to changing market dynamics. The global property technology market size reached $30.16 billion in 2022 and is projected to reach $133.05 billion by 2032, with a CAGR of 16%. 
In this report, Jahani and Associates will analyze the international capital market transaction activities conducted within the hospitality technology and property technology markets between 2020 and Q2 2023. 
  • The total amount invested was $6.47 billion, over 481 deals in the hospitality market between 2020 and Q2 2023.
  • The highest quarterly deal count was recorded in Q2 2020 with 88 deals. This could signify an early response to Covid-19, as investors looked towards new industries and new technologies to adapt to the potential future changing landscape.
  • The second highest deal number was recorded during Q1 2022 with 49 deals, which conversely could be the result of investors seeing significant growth opportunities post Covid-19 as the hospitality market recovered after quarantine restrictions.
  • Within the period, $2.07 billion total capital was invested in the US over 229 deals, with an average deal size of $9 million, demonstrating the importance and focus on the United States. 
  • The second largest recipient was India with a total of $888 million over 23 deals, with an average deal size of $38.6 million. 
  • Spain is the third largest recipient county with $856 million invested over 13 deals, showing  a strong industry interest in Europe. 
  • Between 2020 and Q2 2023, $2.7 billion in M&A investments were made over 97 deals in the hospitality technology industry. The average deal size of the M&A investments was $28.3 million. Some of the key revenue drivers in the hospitality industry are pricing, direct bookings, loyalty programs, and systems and tools. These drivers increased the investment movement in human-powered, tech-enabled experiences, boosting profitability for hospitality. As shown above the M&A activity within the hospitality tech sector could indicate an appetite for market consolidation. 
  • Venture capital deployed $510 million in the hospitality sector within the period across 187 deals. 
  • Private equity deployed $1.5 billion within the period, with an average deal size of $16.8 million. 
  • Between 2020 and Q2 2023 the total amount of capital invested in the property technology market was $12.5 billion, with a total deal count of 808.
  • The busiest quarters were Q4 2021 and Q1 2022, with 86 and 83 deals respectively. 
  • Investment in the sector has slowed since the first half of 2022 in line with a general decrease in the deal count in the global capital markets. 
  • Between 2020 and Q2 2023, $4.7 billion in M&A investments were made over 229 deals with an average deal size of $20.8 million. The M&A activity within the property technology sector could indicate market consolidation. Private equity groups were the biggest investors with $5.7 billion over 114 deals. 
  • Within the period, $1.6 billion was deployed by venture capital in the hospitality sector across 489 deals.
  • With $9.2 billion over 33 deals, the United States was by far the favored destination for investment, with more than 50% of the total invested. The average deal size was $4 million. 
  • Italy was the second largest recipient of investment with a total of $2.1 billion over 15 deals, and an average deal of $38.6 million. 
  • India has the third largest investment received with $2.1 billion over 30 deals, with a $70 million average deal size.
North America, particularly the United States, has been a significant hub for hospitality technology and property technology transactions over the period. In the hospitality technology sector, North American companies have developed and implemented innovative solutions, leading to numerous transactions such as software acquisitions and integrations and subscription partnerships.
Europe has witnessed significant growth in hospitality technology and property technology transactions. Countries like Italy and Spain have been prominent in these transactions, with a focus on property management systems, guest experience technologies, and smart building solutions.
Overall, globally there was a surge in investments in specific industries until Q1 2020. After that, investments and partnerships to develop and deploy technology solutions in the hospitality, real estate, and property sectors have slowed.
Jahani and Associates predicts a continued increase in capital market activity within the hospitality technology and real estate technology transactions in Southeast Asia and North America as economies become more interconnected and companies expand into new international markets.

Source: PitchBook Data.

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Nov
01

Spotlight on Industrial IoT and Logistic Technology Investments in the GCC

Spotlight on Industrial IoT and Logistic Technology Investments in the GCC

Investors from the Gulf Cooperation Council (GCC) have invested $11 billion in the industrial Internet of Things (IoT) sector, and $16 billion in the logistics technology sector since 2020. The Middle East region has traditionally been known for oil and gas extraction and production but is now actively pursuing a reduction in its dependency on oil and gas and diversifying into new sectors. The development of manufacturing and industrial sectors is a key investment focus of many sovereign wealth funds and politically connected investors across the region. Investors in the GCC are looking into industrial IoT and logistics technology companies abroad and striving to develop these sectors within the region.


This report provides a comprehensive analysis of investment activity in the industrial IoT and logistic technology by GCC-based investors. The dataset analyzed focuses on capital deployment, transaction types, geographical distribution, and investor preferences within the industry. By analyzing the data and trends from 2020 to Q1 2023, this report reviews the dynamic landscape of industrial IoT and logistic technology, offering insights into market dynamics and growth opportunities.

Industrial IoT Between 2020 and Q1 2023: Capital Market Analysis

  • Throughout the period from 2020 to Q1 2023, approximately $11 billion was invested into industrial IoT companies by GCC investors in 71 deals. The average deal size was approximately $149 million.
  • The overall chart shows that in most quarters, four or more deals were done with two outliers in Q3 2020 and Q4 2021. The amount invested was relatively static at less than $1 billion, excluding the outliers.
  • The major deal in this time frame was in Q4 2021 in a US company, Medallia, in which Mubadala Investment Company injected $6.4 billion. 
  • Medallia is a software company. Its SaaS platform, the Medallia Experience Cloud, captures experience data from signal fields emitted by customers and employees. It utilizes AI technology to analyze structured and unstructured data from these signal fields across human, digital, and IoT interactions.
  • Of the transactions in industrial IoT, 55% were mergers and acquisitions. This could be due to markets and valuation uncertainty, making buy-side mandates more attractive. 
  • There were notable investments made by venture capital (VC) of approximately $2 billion.
  • Only 2% of the capital deployed was in early stage VCs due to uncertainty around the companies making the investments that were perceived as high risk.
  • GCC investors deployed 72% of their capital into US-based industrial IoT companies. The industrial IoT market in the US was $44 billion in 2021, with a projected market value of $66 billion in 2023, with this significant market potential attracting investments from GCC investors.
  • Of the capital deployed, 19% was in Asia. This is because it is the second-largest industrial IoT market with a market value of $23 billion in 2021.
  • The remaining 9% of the capital was deployed into Europe, the Middle East, and other regions.

Logistics Technology Between 2020 and Q1 2023 – Capital Market Analysis

  • Throughout the period of Q1 2020 to Q1 2023, approximately $16 billion was invested in logistics technology companies in 70 deals.
  • In June 2022, Abu Dhabi Investment Authority executed a buyout transaction with VTG AG, a logistics company based in Germany, for $7 billion.
  • In December 2021, Mubadala Investment and other investors transacted a private investment in GRAB, a publicly traded company for $4 billion. 
  • Of the deals 51% were in mergers and acquisitions, followed by PIPE deals, which represent 25% of the deals. 
  • PIPE deals are generally safer, especially in uncertain markets, and offer faster liquidity to investors. 
  • M&A deals were attractive during this period due to lower valuations stimulated by the slowdown in the markets.
  • Europe represents 54% of the total capital because of the significant deals in Germany, which leads in the ranking of industrial transportation companies in Europe.
  • This is followed by Asia, representing 31%. Asia’s e-commerce logistics market is anticipated to account for more than 57% of total market growth between 2020 and 2025. 
  • Singapore is the world’s busiest trans-shipment hub, which makes it an attractive market to GCC investors interested in logistics technology companies.
The Middle East region is expected to pursue sector diversification through investments within the region and abroad. The manufacturing industry is expected to grow steadily in the coming years as the government initiates and encourages industrial growth and reinforces reduced dependency on the oil and gas sector. It is expected that GCC investors will play an important role in the capital markets after the economic slowdown.
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References: Fortune Business Insights, Statista, PWC, McKinsey, Brink

Jun
26

Sportswear Investments in the Middle East

Sportswear Investments in the Middle East

The Middle Eastern sportswear market was valued at $5 billion in 2020 and is expected to grow with a compound annual growth rate (CAGR) of more than 6% from 2021 to 2025. The sportswear market gained rapid growth during the global COVID-19 pandemic in 2020 as a result of an increased focus on health and wellness. Manufacturers and retailers have expanded their business in production and categories in sportswear as a result.

Sportswear or activewear is clothing, including footwear, worn for sport or physical exercise. Sports clothing is divided into 3 main sectors which are women’s wear, men’s wear, and children’s wear. Women’s sportswear is the top sector in terms of growth, and it is projected to continue to grow up to 7% by 2025. The sportswear market is projected to grow to over $17 billion by 2028. In this article, J&A will analyze the capital market activity conducted within the sportswear market in the Middle East between 2011 and 2022.

 

Overview of the Middle East Sportswear Market

Key Segments of the Industry

  • Sportswear in the Middle East maintained a market size of $5 billion in 2020 with more than 6% CAGR; it is projected to reach more than $17 billion by 2028.
  • Puma led the overall sportswear market in 2020 with market share followed by Nike and Adidas.
  • Women’s sports clothing is one of the crucial categories of sportswear that has growth potential. The sector is forecast to expand at a CAGR of 7% between 2021 and 2025.
  • The COVID-19 pandemic in 2020 affected the wealth and wellness market, which drove sportswear manufacturers to expand into new verticals and product offerings.
  • Strategic partnerships and the technology in the textile industry will grow the market.

The Middle East’s Sportswear Market by Key Categories

The sportswear market is categorized into sports clothing, sports footwear, and sports accessories. Sports clothing accounted for the largest share in 2020, followed by sports footwear and sports accessories. Sports clothing share has been increasing and it is expected to grow at a slow pace during the forecast period.

  • The Middle East’s sports clothing includes women’s wear, men’s wear, and children’s wear, with a 57% market share. Women’s wear is expected to show the highest growth rate during the forecast period. In 2020, activewear was the dominating sportswear type, followed by sports-inspired cTasual wear and technical sportswear types.
  • The Middle East’s sports footwear includes women’s footwear, men’s footwear, and children’s footwear, with a 32% market share. Women’s footwear is expected to show the highest growth rate during the forecast period, while children’s footwear showed the lowest growth rate.
  • The Middle East’s sports accessories include bags, sunglasses, hats, scarves, gloves, belts, and other accessories. Sports accessories have 11% of the market share. In 2020, sports-inspired casual wear was the dominating sports accessories type, followed by technical and active sports accessory types.
  • Global capital deployed in the sportswear sector increased by 262% between 2012 and 2022.
  • In the sector, $10.432 billion was deployed across 178 deals, with an average deal size of $586 million. Significant acquisitions in 2012, 2019, and 2020 drove the fluctuations within the amount of deployed capital.
  • The 2020 focus on health and wellness, due to the global pandemic, led to a spike in deal flow in the sector. In that year 14 deals were done in the space and over $5 billion was invested in the sector.
  • There was a notable decrease in 2021, but in the first five months of 2022 over $2 billion has been invested into the sector, a trend that J&A anticipates will continue.
  • So far in 2022, eight IPO deals were announced in the sportswear sector in the Middle East.
  • Over 80 deals occurred within the private equity sector showing the growing maturity of the market. Venture and pre-venture capital represented 45% of capital deployed in the sector (113 deals). This trend highlights the potential in the sportswear sector as new entrances into the market receive notable capital deployment.
  • There were 48 mergers and acquisitions announced within the sportswear sector. This indicates that there are large firms that are interested in mergers and acquisitions deals.

Deal Spotlight: The Giving Movement


THE COMPANY

Dominic Nowell-Barnes made the UAE his home in 2017, where he found his purpose for making a change. Seeing the fashion industry’s impact on climate changes and in some areas unethical practices he made it his mission to create a vehicle of positive change that everyone can be a part of. The Giving Movement launched in April 2020, created as a way to alter the way fashion is consumed and to shed light on conscious consumerism. The goal was to create a new model where sustainability is curated for youth, a disruptive brand that creates meaningful apparel — making an impact with every purchase.

RECENT FUNDRAISING

The Giving Movement, a sustainable sportswear company, raised $15 million of Series A venture funding in a deal led by Knuru Capital on March 13, 2022. Other undisclosed investors also participated in the round. The funds will be used to further its category growth to include children’s wear, and the recently announced baby wear lines, as it eyes expansion into new markets.

Global trends towards health and wellness will continue to drive demand for sportswear products. J&A predicts a continued increase in capital market activity within the sportswear sector in the Middle East as economies become more interconnected and companies expand into new international markets.
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Sources: PitchBook Data, Data Bridge, Global Data.

Jun
08

Cross Border Investments: The Middle East and China

The Middle East and China

This report investigates cross-border investments made between the Middle East and China since 2020. The Middle East serves as a strategic economic hub due to the strength of the energy sector and geographic positioning. Countries like the United Arab Emirates and the Kingdom of Saudi Arabia have held strong historic ties to the West, but are experiencing increased levels of economic relations with China. With current oil and gas shortages and rapidly increasing prices, the Middle East will continue to be a valuable economic battleground.

Capital deployed by Chinese-based investors in the Middle East focused on early-stage companies, with 81% of deals in the sector occurring in venture capital transactions. This highlights the desire to invest in the future growth of the region.
Many deals in the sector are unannounced, so this data may under-represent actual deal volume and size. This report outlines the type, deal count, dollar volume, and industries of Chinese investments in Middle Eastern companies. 

Chinese Investors Capital Market Activity: Middle Eastern Companies

Since 2020, 132 cross-border deals were announced between Chinese investors and Middle Eastern-based companies, in which a total of $9.7 billion was deployed. The chart below shows the deal count and capital raised in this cross-border category.

  • Deal count within the sector remained consistently ranged between 10 and 20 deals per quarter, with a mean value of $7.35 million. Chinese investors’ mean value of deals with Middle Eastern companies has increased over time, showing an increased appetite to invest in the Middle East.
  • The graph excludes the $4.31 billion secondary investment into Saudi Aramco (pipeline business) conducted by China Merchant Capital and Silk Round Fund, as well as a syndicate of other institutional investors including BlackRock, which skews the data.
  • Capital deployment peaked in Q1 2021 with a total of $4.74 billion, including the secondary transaction into Saudi Aramco (pipeline business), and over 14 investments. In 2020, Q1, which largely occurred before the pandemic, was the next most active period.
  • Information technology was a leading sector for deal counts conducted by Chinese investors in Middle Eastern companies. Over 45% of transactions in the categories were in the information technology sector, though it received less than 13% of capital deployment.
  • The energy sector received the most significant capital deployment of over 44%, mostly due to the Saudi Aramco transaction.
  • The health care sector received significant capital, 27%, through 27% of deals conducted by Chinese investors. This shows the high level of interest that Chinese investors have in the Middle Eastern health care sector.
  • Chinese investors deployed $3.37 billion into venture capital deals in the Middle East since 2020 in over 107 transactions. Of the total deal flow, 36% went into later-stage venture capital deals while early-stage venture capital and seed investments received 34% and 11% of the deal count, respectively.
  • The secondary deals sector received the most significant capital deployment of over 45%, mostly due to the Saudi Aramco transaction, but contributed to less than 5% of the total deal count.

Investor Spotlight: MSA Capital

The Company

MSA Capital, formally known as Magic Stone Alternative Investments, was founded in 2014 and has made 127 investments. MSA Capital is headquartered in Beijing, China, and invests in global companies from seed to early growth phases.

  • MSA Capital completed 10 deals since 2020 with Middle Eastern companies.
  • MSA Capital has an industry focus on apparel and accessories, commercial services, healthcare technology, pharmaceutical and biotechnology, retail, and software.
  • The firm’s median capital invested is $15.6 million and has deployed capital into 53 companies in the last 12 months.
The expansion of capital market activity between the Middle East and China is something that firms in both regions will help drive growth in global markets. Large energy deals dominated total capital deployment by Chinese investors into Middle Eastern companies since 2020. However, over 80% of deals in the sector were in venture capital deals, demonstrating the demand to invest in the future of the region. J&A expects the capital market activity between China and the Middle East to increase over time as these emerging markets continue to develop.
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