The flow control industry remains highly attractive to middle market financial sponsors and investors for several reasons, according to a 2011 Flow Control Industry Update from Jordan, Knauff & Company, a middle-market investment bank specializing in the flow control segment.
According to Jack Gonder, vice president for Jordan, Knauff & Company’s Flow Control Group, the $150 billion market has all the characteristics that result in fertile merger and acquisition activity. Those characteristics include its large size, profitable companies, stable growth, niches and complimentary products, strong distribution relationships, geographic coverage and expansion, and certified, propriety products.
“Generally speaking it has outperformed the broader market,” Gonder said of the flow control sector. “It is extremely attractive to private sponsors and investment firms that are looking to make an investment into companies in the sector.”
Jordan, Knauff & Company considers the flow control market as made up of companies that manufacture or distribute products that measure, manage or control the flow of liquid and gases.
“There are a significant and robust number of strategic companies, public as well as private, in the area with high levels of acquisitiveness across the board and markets that are served by flow control companies are very diverse and resilient and some of the best markets in the economy right now,” Gonder said. “There is continuing product innovation, strong public markets, and strong emerging market growth opportunities.”
Despite the recent economic recession, there is steady growth in demand for flow control products in the pumps, valves, and filtration areas, Gonder said. Pump and valve markets are expected to grow 4.4 percent through 2012 while filtration is expected to grow 5.1 percent during the same time period. Globally, the pump, valve, and filtration markets should expect to see continued growth opportunity in the three largest market areas of Asia-Pacific, North America and Western Europe. The market in Latin America is also growing, Gonder said.
In terms of further growth, the bank cited industrial and commercial water applications as a particularly promising market segment, as the demand for water resources will increasingly outstrip supply and focus on innovation increases.
Jordan, Knauff & Company says the flow control market will stay attractive to the private equity community as it continues to show stable growth and outperform the broader market. The bank informally estimates that there are more than 4,000 financial sponsors that have an interest in flow control-related businesses and approximately 600 flow control businesses that already received an investment, recapitalization, or have been acquired. In addition, the firm estimates another 7,400 flow control companies, making it a very diverse and resilient market for investors.
“As we talk to business owners here, by and large, we hear they are doing quite well,” Gonder said. “Their forecast and visibility is limited compared to four years ago, but most companies have worked through their issues and are performing quite well, both last year and this year.”