Industrials: Onshoring Generates Tailwinds Across Segments

Due to recent government incentives, global supply chain disruptions, and increasing geopolitical tensions, industrial businesses are appraising and revising their manufacturing footprints. For many, this means producing more items closer to home, which is giving rise to a host of new growth opportunities for industrials-focused M&A investors.

Here, senior professionals from our Industrials Group discuss the onshoring and nearshoring dynamics creating value-creation opportunities across industrials and which businesses stand to benefit the most.

Opportunities Closer to Home

Over the past several years, companies have assessed their manufacturing footprints and increased their onshoring and nearshoring operations. In fact, mentions of reshoring in earnings calls were up 128% in the first quarter of 2023 compared with the first quarter of 2022.¹

Much of this rising onshoring activity was caused by tariffs on Chinese imports and the Tax Reform Act of 2017. Made in China products, for example, currently have a 25% tariff on approximately $250B of imports across a broad swath of categories.² The Tax Reform Act, meanwhile, lowered U.S. manufacturers’ tax rate to 21%, significantly less than the worldwide average manufacturers’ tax rate of 24%.³

Recently, manufacturing relocation activities have further accelerated due to global supply chain disruptions stemming from the COVID-19 pandemic. As a response, companies are now transitioning from linear to integrated supply chains with multiple suppliers and manufacturing plants. With global geopolitical and business environments becoming increasingly uncertain, U.S. companies will continue to seek opportunities to shorten their supply chains, improve supply chain stability, reduce costs, and boost visibility.

“In the short term, demand will grow for a vast array of industrial products and services that support the relocation of manufacturing facilities to the U.S.” notes Tim Webb, group head and managing director in our Industrials Group.

“In the medium and longer terms, there will be steady demand for industrial products and services related to housing and local infrastructure. This will be driven by a greater number of people living and working near new onshore and nearshore facilities,” he continues.

Webb adds that the industries with secular growth drivers that are helping to spur onshoring, such as semiconductors, electric vehicles, and automation, will see long-term growth. “As industries and businesses with onshore and nearshore operations mature, they will also generate incremental maintenance and repair-driven demand for industrial products and services,” he says.

Which Industrial Sectors Stand to Benefit

M&A investors looking to put capital to work in the industrial economy will have multiple options to explore, whether it be investment in high-growth, high-technology companies placing facilities back in the U.S. or highly resilient businesses set to benefit from the buildout and maintenance of new manufacturing facilities.

A closer look at the sector-specific dynamics of onshoring and nearshoring across the industrials landscape offers insights into some of the most promising opportunities.

Home Field Advantage

Due to wide-ranging factors from geopolitical uncertainty to the recent pandemic, companies are seeking ways to shorten their supply chains, lower costs, and guarantee safe and on-time delivery of goods. This is causing more U.S. businesses to place manufacturing facilities closer to home.

With this rise in onshore and nearshore manufacturing comes growth opportunities throughout the industrials landscape. Several key segments will experience boosts in demand and offer industrial investors appealing avenues to put capital to work and create value.

“The onshoring trend is a significant long-term value driver across industrials,” says Webb. “We’re excited to see the growth opportunities it will continue to create for our clients and their investors.”

HW Insights

Contact our Industrials Group to request our latest report covering the rise of onshoring and its impact on the industrials space, including an overview of the sector landscape and key highlights across critical segments.

1. Firms are Bringing Production Back Home Because of the Ukraine War, China’s Slowdown, and TikTok, CNBC

2. U.S. Increases Import Duties on China, PBCUSA

3. Global Labor Rates: China is No Longer Low-Cost Country, Supply Chain Management Review

4. Semiconductor fabs: Construction challenges in the United States, McKinsey

5. 2020 State of the U.S. Semiconductor Industry, SIA

6. 2022 Data Report, Reshoring Initiative, Fact Sheet: CHIPS and Science Act Will Lower Costs, Create Jobs, Strengthen Supply Chains, and Counter China, The White House

7. https://www.whitehouse.gov/briefing-room/statements-releases/2022/08/09/fact-sheet-chips-and-science-act-will-lower-costs-create-jobs-strengthen-supply-chains-and-counter-china/