Trends Watch: Manufacturing

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.  

This week, Elana talks with Russell Greenberg, Founder and Managing Partner, Altus Capital Partners.

What is your outlook for private equity investments in U.S. manufacturing?

We continue to be bullish about the outlook for U.S.-based manufacturing businesses. Our positive outlook is reinforced by the changes to the economy that we anticipate will occur after the effects of the coronavirus. In the short term, all businesses will be negatively affected by the virus. However, in terms of revenues and earnings, once the effects of the coronavirus materially dissipate, then U.S.-based manufacturing will see many opportunities. We believe the opportunities for U.S. manufacturing will further advance by continuing to drive onshoring of production that was previously in China. There is no question that the coronavirus exposed supply chain weaknesses posed by our reliance on foreign countries. As such, U.S. manufacturing businesses will invest locally in more production capabilities to assure both customers and government entities that we can achieve the critical supplies without having to source from overseas. 

Our view is there will be latent demand for hard goods once the economy starts to recover. Consumer demand will drive the need for higher production levels from manufacturers across all sectors: housing, building products, automotive, durable goods and, in particular, infrastructure. We do not think the current retraction of the U.S. economy is permanent and expect to see a rebound to near full strength by the end of the year.

Where do you see the greatest opportunities?

We see many opportunities for profitable investments by utilizing technology on the factory floor.  We seek businesses that take advantage of the developments in robotics and industrial technologies to improve efficiencies, enhance quality, and grow market share. Specifically, we strongly encourage and support our portfolio companies investing in automation and robotics. We are concerned about the long-term viability of businesses that are not investing in technologies such as automation and robotics. One area of strong opportunities will be infrastructure; investing in America’s roads, bridges, tunnels, and airports needs to be addressed in order to sustain economic growth. There are many channels into infrastructure that we believe will present good investment opportunities. In addition, we believe there will be an increase in the movement of the supply chain out of China for a number of industries. This shift will drag ancillary businesses out of China and provide great opportunities in the U.S to move a portion of that supply chain into North America.

What are the biggest challenges?

There are three primary challenges that come to mind. First, it is important to maintain good people at each of the portfolio companies. It is critical to keep these people engaged and motivated. Even prior to the coronavirus, there was the challenge of finding skilled labor in the U.S. This places even greater importance on having strong managers. The second challenge is the maintenance of strong cybersecurity systems to both support a business and prevent the loss of data and intellectual property. The final challenge will be taking action with agility to counter issues that arise in this competitive world. Industrial businesses will need to move quickly to take advantage of technologies offered by new processes as well as automation and robotics. 

What keeps you up at night?

Given the short-term economic dislocations caused by COVID-19, I am concerned that government will impose regulations and programs that will harm the free enterprise system and make it harder for the economy to recover and grow.