Northeast Ohio Deal Activity: The economic impact of a Manufacturing Resurgence

 

The United States manufacturing industry has been resilient since the start of the decade, despite ongoing hindrances stemming from the COVID-19 pandemic, such as supply chain disruptions, inflation and workforce shortages, as well as geopolitical uncertainties. Accounting for 11 percent of the U.S. Gross Domestic Product and 8 percent of the U.S. workforce, a robust manufacturing industry plays a vital role in powering domestic production and employment, as well as the overall global economy.

According to research performed by McKinsey & Company, the resurgence of U.S. manufacturing could result in roughly 1.5 million new jobs, primarily among middle-class workers residing throughout the Midwest region. While this influx of jobs would provide various economic benefits to hundreds of communities, the true economic impact would be realized across the U.S. through employment multipliers, which are indirect jobs created through manufacturers’ presence within a community. As employment multipliers consider industry linkages, consumer discretionary spending and tax revenue, the Economic Policy Institute estimates an additional 9.5 million jobs would be created as a result of 1.5 million manufacturing jobs.

In addition to the aforementioned labor benefits, the resurgence of U.S. manufacturing could help mitigate the reliance on imported materials, which have historically fueled domestic supply chains. As a result of the urgency created by the COVID-19 pandemic, U.S. manufacturers took immediate action to strengthen supply chains by increasing critical inventory, diversifying suppliers, and localizing production and supply networks. Although residual risk will always be present, U.S. manufactures remain confident that the improvements made as a result of the COVID-19 pandemic will pay dividends in future years.

M&A Market Activity

Domestic deal activity continued to slow in August 2022, as M&A activity reverted to near pre-pandemic levels. U.S. M&A deal volume for the eight months ended Aug. 31, 2022 declined 13.4 percent when compared to the same period in 2021, while disclosed deal value for the eight months ended Aug. 31, 2022 declined 16.7 percent when compared to the same period in 2021.

In August 2022, the Northeast Ohio M&A market has remained relatively consistent with the record-setting M&A activity displayed in 2021, as deal volume in August 2022 decreased minimally by 2.6 percent relative to August 2021. However, for the eight months ended August 2022, Northeast Ohio deal volume was 10.8 percent lower than the prior year. With that being said, August 2022 saw the closing of several noteworthy transactions in Northeast Ohio both from strategic and private equity acquirers. Cleveland-based companies, such as The Riverside Company, Align Capital Partners, Edgewater Capital Partners and Park-Ohio Holdings Corp., completed multiple acquisitions within the month.

Deal Of The Month

On Aug. 2, 2022, Cleveland-based Park-Ohio Holdings Corp. announced the acquisitions of Southern Fasteners & Supply Inc. and Charter Automotive Co. Ltd., both of which will be additions to the company’s Supply Technologies segment. Headquartered in Winston-Salem, North Carolina, SFS provides commercial fasteners and industrial supplies to a diverse base of MRO and OEM customers and specializes in the design of customized inventory programs for its customers. Charter, on the other hand, is strategic to the company’s fastener manufacturing business and will accelerate the global growth of its proprietary products to electric vehicle and other auto-related platforms. Management anticipates both acquisitions to be immediately accretive to operating margins and earnings per share. ●

Mike Kostandaras is an Analyst with MelCap Partners, LLC, a middle-market investment banking advisory firm. For more information on MelCap Partners, please visit www.melcap.com or email [email protected]