Table of contents
The European industrial parts production market comprises players that design, develop and produce components of industrial systems. These businesses deliver components or subsystems as input for players that subsequently produce the finished end-product. Most of the identified players operate across sectors, although some specialise in one end market. Accordingly, we segmented the market by the end-customer focus into (i) generalist, (ii) aerospace and (iii) automotive.
The European competitive landscape varies by vertical. For example, the aerospace components industry is significantly fragmented. One reason for this dynamic is that aerospace manufacturers have always relied on broad supply chain networks with multiple suppliers per product group. On the other hand, some segments of the automotive vertical are highly concentrated, with the concentration being stronger the more specific the niche is.
Sponsor-led interest has been moderate, with ~50% of identified assets being backed by financial sponsors (June 2023). We see (i) strong profitability, (ii) long-term order contracts and (iii) technological know-how as the key factors attracting private equity investors.
ESG issues primarily relate to environmental topics. Herein, industrial parts production has a notable impact on the environment as it consumes significant amounts of energy and raw materials. To lower their carbon footprint, the players invest in renewable energy sources, increased automation, new manufacturing methods with reduced material losses and alternative (non-finite) and recyclable raw materials.
BCG (November 2020) valued the global industrial machinery sector at ~$2.5tn per end-2020.
According to Airbus (July 2022), the number of passenger and freighter aircraft will total ~47,000 in 2041, growing at ~3.5% CAGR 2020-2041.
Statista (September 2022) indicates that global light vehicle production will grow from ~75.8m units in 2021 to 98.9m units in 2025 (+6.9% CAGR 2021-2025)
End-product manufacturers are increasingly outsourcing parts production as it allows them to shorten time to market, accelerate innovations and improve working capital. Furthermore, the trend is expected to go as far as R&D outsourcing and co-participation in the future (interviews by Gain.pro)
Increased industrial parts demand in the medical, agriculture & food and energy verticals driven by secular megatrends. These are (i) the ageing population and advancements in emerging markets, (ii) increasing food demand on the back of the growing world population (Nature Food, July 2021) and (iii) the transition towards green technologies, respectively (interviews by Gain.pro)
Industry 4.0 and robotisation trends are expected to drive efficiency improvements and lower labour costs. Herein, automation will lower parts producers’ dependence on human capital, allowing easier adjustments to cost structures. Furthermore, this will streamline the volatile nature of incoming orders (interviews by Gain.pro)
Rising labour costs will remain a material threat to profitability. Already comprising ~35% of revenue for an average industrial parts manufacturer (interview by Gain.pro), salaries are expected to increase further due to talent shortages and greater technological expertise necessitated by the regulatory landscape (Association of Equipment Manufacturers, January 2022)
Two-way market pressure in the aerospace segment. Aerospace manufacturers attempt to reduce the number of per-platform Tier 1 suppliers for cost efficiencies (Oliver Wyman, March 2015; CIOCoverage), while simultaneously vertically integrating component manufacturers. This could weaken and even eliminate the position for some mid-market suppliers (interviews by Gain.pro)
Disintermediation risk that could result in players’ business moving towards sourcing instead of (co-)development. A case in point is the production of autonomous vehicles. Therein, potential new competitors (including tech giants such as Alphabet) which are familiar with the development of these technologies could replace existing suppliers by moving up the value chain (interviews by Gain.pro)
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