What are some segments of the manufacturing industry which are not that cyclical?
I was wondering whether there are some segments of the industrial goods space (I.e. manufacturers active in B2B and not consumer goods) which are less cyclical than the notorious chemicals, steel, etc. For example, how segments like packaging, plastic, industrial machines, paint, glue, building materials, etc.
I ask the question because I recently saw a study showing PE invest heavily in manufacturing but I have always thought PE preferred non cyclical companies that can survive a downturn despite the relatively high amount of leverage that they take on after an LBO.
How do you reconcile this?
Some non-discretionary B2B goods I can think of:
-Rubber gloves, sanitary wipes and toilet seat covers for restaurants and commercial offices (small ticket and non-discretionary) -Fire safety Equipment (non-discretionary by law) -Repair-focused goods (nuts and bolts, gutters, locksets, fences, replacement windows - these are small ticket and fairly essential for many businesses) -Medical and aerospace equipment (highly specialized and "mission critical")
Hey! Thanks for the response which gives very useful segments. Apologies for my ignorance, what do you mean by non discretionary?
A non-discretionary purchase would be one that you do not have much choice in making. For example, I cited locksets - If a retail store had a lock break, they need to buy a new one. They cannot exercise much discretion here.
Ah ok, sure makes a lot of sense. Where do you see PE being most active these days whining manufacturing? Does my theory hold that they must be focusing on those non-discretionary segments? Additionally, why wouldn’t they just focus on consumer goods vs manufacturing?
PE is active everywhere, there are thousands of PE firms. Different firms specialize in different industries. A firm could focus on a non-discretionary, more cyclical business if they bought in at the right price or had some special plan or knowledge. A high quality, non-discretionary, non-cyclical business would command a very high entry multiple.
Thank you!
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