The industrial landscape is obviously huge and diverse – so we look for companies that play into three growth themes: the adoption of technology, the incorporation of services and the emergence of ‘winning’ global platforms.
Decreasing cost, miniaturisation, wireless technology and the primacy of software are transforming the sector. Technology has become pervasive and interconnected through the whole value chain in most industrial businesses. For example, the ubiquity of low-cost sensors creates a need for software that can make sense of the massive amount of data being generated and provide an array of aftermarket solutions that in turn impact the interface with customers.
Maximising the benefit of technology at each stage in the value chain is critical and almost always a key part of how Permira helps management drive value. We look for businesses where we can combine our 30+ year experience in the Industrials sector with our Technology expertise to help increase efficiency and productivity, drive down costs and ultimately help them grow.
In the e-commerce, fulfilment business, Intelligrated (P4, 2012–2016) is a good example. Our understanding of software and a clear roadmap for how it should be incorporated into the business was a key factor in persuading the founders to partner with the Permira funds from the outset.
During the investment period, the management team put this vision into action, increasing yearly R&D spend from $6 million to $27 million to build a software platform that met the growth ambitions. We partnered with management to recruit a senior professional from the Permira network to lead the software charge.
We ultimately shared the benefits of this foresight as the business doubled in size and was re-rated under the funds' ownership.
The incorporation and growth of services in industrial businesses is another key area of focus, both from an origination point of view and as a value creation tool during ownership. Maximising the potential of ongoing services is vital in two ways: it enables you to get closer to your customers and it gives you a transparent stream of repeatable revenue. The growth in aftermarket services is, in many cases, enabled by the integration of the types of technology discussed above, which helps industrial companies to provide data and services that weren’t available before.
In almost all of the funds' portfolio companies, it is becoming increasingly difficult to turn up and simply sell a product. Customers are demanding a full solution for the lifetime of their investment and everyone is trying to provide it for the whole customer journey. Across the funds’ portfolio we are seeing the service element account for a much larger share of revenues.
In the case of BakerCorp (P4, 2011), a largely US-based industrial services company, it has led the field in the integration of monitoring technology in all of its equipment. This provides two clear advantages to the customer, enabling them to accurately monitor exactly what is going inside the machines and also helping maximise the utility of the machines they have had at their disposal by providing a dashboard of all the availability capacity on site. For the bigger petro-chemical companies, being able to bring all this data together in one dashboard is a huge advantage, but it only works when you own the whole customer.
In the Industrials sector, if you do something really well in one market you are likely to be able to roll it out internationally. With a global network of partners and contacts and a 30+ year track record helping Industrials businesses grow beyond their home markets, Permira is perfectly placed to support this expansion.
While geographic expansion plays a key value creation role in virtually all the funds' portfolio companies, Netafim (P4, 2011) is a particularly good example of how technology and services can help build a world-beating industrial proposition. The company is an Israeli leader in drip and micro-irrigation solutions, which played into two critical investment themes – food security and productivity. The team had succeeded in building full-service turn-key solutions for farmers, from advice on choosing seeds, to irrigation, fertilising, monitoring and aftermarket servicing, to help them optimise their land usage. With this complete solution in place, we backed management to take the company into new markets and expand into core geographies like China and Brazil to become the global number one in irrigation systems.
While there are verticals within Industrials where we spend more time, we are primarily driven by the opportunity to drive change and create value around one or more of these three themes.