Industrials

Why invest in Industrials

• Value Creation Opportunities
• Market Consolidation
• Stable Cash Flows
• Technological Advancement
• Global Demand
• Vast Supply of Potential Opportunities

What are the main risks of Industrials

• Cyclicality
• Commodity Price Volatility
• Supply Chain Disruptions
• Regulatory Challenges
• Technology Risk
• Labor Constraints

What characterizes Industrials?

• Industry/Sector: Industrials, including sub-sectors such as manufacturing, logistics, and infrastructure, often focusing on both niche and broader market opportunities.
• ESG: Positive Screening/Best-in-class and Impact Investing approaches are increasingly applied, with a focus on enhancing sustainability and operational efficiency within industrial companies.
• Instruments: Equity
• Target Company Size: Investments typically target Mid to Large-sized companies, though Small companies with high growth potential are also considered.
• Return Profile: The industrial sector offers stable, long-term returns, with opportunities for value creation through operational improvements, market consolidation, and technology integration.
• Geography: Depending on the investment strategy, investments in industrials can be Global, regional, or country-specific, with significant focus on regions with strong industrial growth such as North America, Europe, and emerging markets in Asia.

Question 1. What is driving the evolution of the opportunity set within your niche?

Golden Gate Capital

Middle-market private equity has outperformed large buyout firms due to its flexibility and focus on smaller, scalable companies that benefit from specialized operational expertise. While many managers prioritize increasing AUM and fund size, GGC has remained disciplined in its approach. Since 2000, we have focused on investing in companies where we can apply our proven value creation strategies to drive growth and deliver strong returns. As a firm, we focus on compelling investment opportunities in niche market leaders with exceptional growth. These companies are strategically positioned to capitalize on macro trends including the rise of AI, growing demand for "do-it-for-me" consumer services, ongoing energy transition, expansion of private wealth, and significant advancements in fintech. We focus our investments on sectors such as Industrials, Consumer, and Technology & Financial Services where we believe the intersection of traditional industries with emerging trends offers the greatest growth potential. We’ve found the most attractive risk-adjusted returns are often derived from investing in adjacent and non-traditional markets. For instance, we have been spending time in sectors like industrial utility products - companies whose expansion is driven by heavy capital investment in the U.S. electrical grid, a trend driven in part by the energy demands of AI data centers. This approach allows us to identify unique growth opportunities in markets not traditionally associated with high growth potential and often overlooked by other investors. Our bottoms-up diligence process ensures we target high quality businesses with strong growth potential.

Question 2. What are the most valuable lessons you’ve learned from past challenges within your portfolio, and how have they influenced your risk management approach today?

Golden Gate Capital

At GGC, we are very careful with our approach to buy-and-build strategies, ensuring they are driven by fundamental value creation rather than financial engineering alone. We do not pursue M&A solely to "average down the cost basis." Instead, we focus on organic greenfield capital expenditure projects that are highly accretive, aiming to add EBITDA at 1x-3x creation multiples. Additionally, we seek highly strategic acquisition targets that expand geographic reach, broaden product portfolios, and reinforce efficiencies of scale. We take a disciplined approach to capital structures and are particularly cautious about over-leveraging and relying too heavily on debt supported by highly adjusted pro-forma EBITDA. At GGC, our emphasis is on growth and long-term value creation, aimed at increasing strategic scarcity value to drive re-rating upon exit. 

Question 3. How is the changing global geopolitical order reshaping risks and opportunities within your industry?

Golden Gate Capital

At GGC, we avoid making macroeconomic bets and instead focus on fundamental underwriting to identify highly differentiated market leaders within the U.S. These companies are often insulated from geopolitical disruptions and, in some cases, are positioned to benefit from the resulting volatility. For instance, our Industrials portfolio includes U.S. based manufacturers that have capitalized on the ongoing reshoring trend, driven by tariffs and supply chain realignments, as domestic manufacturing becomes more competitive relative to global alternatives. While these benefits are viewed as potential upside, they are not required in our base case when making investment decisions. Additionally, our businesses' strong market positions allow them to pass increased raw material costs onto customers mitigating margin pressures. Within our Technology & Financial Services vertical, we recently invested in a leading software provider for retail foreign exchange trading which is benefiting from heightened FX volatility. Our long-term focus on U.S. domestic markets across our key verticals further mitigates exposure to geopolitical risks, reduces the likelihood of large-scale disruptions, and positions us to capitalize on opportunities created by evolving policies.