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You’ve heard of the IoT (the internet of things)—but what about the IIOT—the Industrial Internet of Things (“IIoT”)? Industrial companies, once stubbornly traditional, are embracing the Industrial Internet. Together with big data analytics to analyze the information that comes in from millions of sensors used in industrial applications, companies are becoming more efficient, getting to market faster, and improving profitability.

A choice is at hand for industrial companies. This IIOT-based transformation can be viewed by industry leaders either as an existential threat, or as a game-changing opportunity, depending on their willingness and ability to adapt to change. For those that embrace the IIOT opportunity, capital markets strategies have become an integral part of the success of companies in both the technology and industrial sectors, as they can shape a company’s ability to capture market share and operational efficiencies that differentiate from the competition. In particular, capital infusions and M&A transactions are increasingly predicated on companies’ vision for addressing opportunities created by the IIoT revolution. For example, industrial firms that lead in their category may merge with or acquire smaller firms with more advanced IIoT strategies in place, while other companies will turn to lenders or private equity investors for the development capital to invest in leading-edge technology.

Internet Meets Industry: A Massive Market

Research shows that the market for IIoT technologies is expected to grow from $93.99 billion in 2014 to reach $151.01 billion by 2020. In manufacturing alone, the market size is expected to grow from $4.11 billion last year to $13.49 billion by 2020. But this megatrend extends far beyond the manufacturing sector. A recent report from Accenture notes that the rise of IIoT technologies affects industries that collectively represent 62 percent of gross domestic product in developed nations around the world.

As connected devices learn to interact with one another, companies accumulate a vast amount of data. Mining that data for useful insights and operational efficiencies is what the Big Data concept is all about. For companies that invest the time and money to get it right, application of the IIoT produces strategic advantages such as:

  • Enhanced operational efficiency in production, supply chain, logistics and customer relations;
  • Reduced energy and water consumption;
  • Higher levels of safety for workers and plants; and
  • A strong defense against unscheduled operational downtime.

Some sectors are more advanced than others in tapping the opportunity that automation and big data analytics represent, with aviation, oil and gas, transportation, power generation and distribution, manufacturing and mining among those sectors farthest along the learning curve.

Disruption Breeds Opportunity

Because the IIoT is in the early stages of its application curve, within each industry sector there exists a wide disparity between the most advanced companies and those struggling to catch up. The swift rise of IIoT represents a disruptive trend: long-term sector leaders face possible replacement as leaders or in market share, and are facing threats from smaller companies that are better able to capitalize on the benefits of technology. The implications from a capital markets standpoint are clear: Companies that understand how to seize opportunities presented by IIoT are gaining more favorable treatment from investors and capital providers than those who don’t. Industry stalwarts must not take their leadership for granted, and should use their leadership position to invest in technology, to defend and reinforce their market share.

Consider the possibilities in terms of M&A transactions. Companies looking for an edge over competitors increasingly want to merge with or acquire competitors that have stronger IIoT capabilities. In other cases, sector leaders might seek an advantage by acquiring firms that develop the underlying hardware or software solutions. Firms in complementary market sectors might seek strategic partnerships to enable integration of their IIoT.

In all these cases—and in the vast majority of industrial M&A deals going forward—a company’s position and vision on automation and data analytics weighs heavily on the minds of prospective investors and partners. This perspective is not a well-kept secret: Accenture reports that the vast majority of industrial executives’ view investment in IIoT and the big data it generates as a top priority to their continued success.

Identifying and executing the optimal approach to IIoT implementation is perhaps the greatest challenge facing industrial sector companies today. The opportunities are almost limitless, but time and capital resources are not. Corporate leaders must pursue strategies that will give them a clear competitive advantage, and finding the right M&A deal to get to that goal is more easily said than done.

One way to ensure you’re on the right track is to work with a financial team that can not only structure a win-win M&A transaction, but also possesses the industry contacts and expertise to help guide you. As with any strategic move, the first step is to understand where your firm stands today and where you need to be tomorrow. Then comes the hard work of identifying and executing M&A deals and other financial strategies that will lead to success.

This formula illustrates why KeyBanc Capital Markets is a leading M&A advisor to the industrial sector. A consistent commitment to the industrial sector, combined with a clear understanding of IIoT and strong experience in M&A, sets KeyBanc Capital Markets apart from other financial players. Our relationship approach to business means that we’re not just trying to make a deal—we’re dedicated to helping companies follow the best possible strategy as they embrace IIOT for competitive advantage and industry leadership.

For fresh ideas, contact:
Dave Kalez
Managing Director
KeyBanc Capital Markets
503-821-3896