The industrial flow control sector has shown continuous M&A activity throughout the past decade, mainly in the Americas and Europe. The number of transactions completed worldwide in 2023 rose to an all-time high and there is not signs of this slowing up.

M&A activity in the global flow control market is predominantly driven by large corporates seeking to broaden their portfolios beyond their current suite, acquiring new technologies to enhance their product offerings, expanding their geographical reach and enhancing their industrial expertise.

The macro theme of Industry 4.0 is key driver in the flow control sector, as many companies seek to enhance the capabilities on the back of the convergence of their digital and physical offerings. Players in the sector are seeing that new technologies can develop new opportunities in terms of both new revenue streams and overall productivity.

The sector is also experiencing a number of other critical themes. The first of these is a notable move towards market diversification, with this being both geographic and end-market focused. For instance, it has been seen that many players are moving away from traditional flow control markets such as construction, oil and gas and water, towards more attractive end markets such as chemicals, food and beverages, medical and pharmaceutical.

Another critical theme is the embracing of new product developments, with the increasing need for monitored and smart devices. Many players in flow control are seeing that automation and innovation can allow them to create solutions which offer lower operating cost structures.

Supply chain rationalisation and reassessment is another theme which is driving M&A activity. Many players can see than supply costs has been significantly reduced through the acquisition of critical suppliers.

In terms of specific sub-sector activity, the following can be observed:

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• The construction market is often overlooked as an opportunity for the flow control sector but there remains an ever increasing level of demand in this market for more innovative flow control solutions (eg for the management of gas and water requirements into properties).

• Healthcare and pharmaceutical have always been important end markets for the flow control sector, with customers in these sectors constantly looking for new innovation and solutions that can integrate into their existing production processes.

• New energy sources are big drivers in the flow control sector, with the ever increasing search for cleaner energy. With his trend, hydrogen distribution, production and storage presents a significant opportunity in flow control, with highly specialist pipes, pumps and valves being required. At the same time, the liquified natural gas (LNG) sector is experiencing growth due to the part which it can play in the transition towards a lower-carbon economy. The benefit from this for the flow control sector is that is requires highly specialist cryogenic controls, pumps and valves for LNG processing, regasification and transport.

• The oil and gas market remains a significant end market for the flow control sector, with oil price stability being a key driver for the overall market. At the same time there is an ever-increasing demand for greater innovation in oil and gas, as customers look for solutions that will provide them with ever creative ways of accessing complex and remote oil and gas reserves.

• In water and wastewater management, the fears of sustainability and water scarcity are driving the demand in flow control, especially around conservation, recycling, water protection and water treatment, whilst deteriorating water systems are driving the demand for the modernisation of infrastructure in order to curb losses, elevate water quality and meet increasing demand.

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A common overarching theme across all of these sub-sectors is the increasing demand and move towards digitalisation and smart technologies. There is an increasing demand from customers for flow control solutions to move from being less reactive and more proactive. Customers are increasingly looking to the efficient use of energy, predicting potential failures, seeking more environmentally-friendly products and reducing unscheduled downtime. This means that there is more demand for digital monitoring and the ability to harness the capabilities of predictive maintenance. The use of artificial intelligence and automation in flow control are therefore becoming the key fundamentals for the Internet of Things (IoT) in flow control. There is therefore increasing demand for metering solutions and sensors to be included in flow control offerings in order to harness the benefits of control, monitoring and the optimisation of process efficiencies.

Ongoing specific M&A activity in flow sector will benefit from the improving macro-economic environment and many groups are seeking automation capabilities, new product technologies and smart devices through acquisition. Industry 4.0 solutions in flow control allow for pipe, pump and valve manufacturers and distributors to play a more prominent role in the replacement of more common mechanical products with innovative solutions based on data analytics, monitoring and collated sensor-based technologies.

In terms of valuations in the flow control sector, the range of multiples paid for businesses can vary from anything between 7x and 12x EBITDA. Significantly, any players in the attractive growth segments of artificial intelligence, automation and digitalisation can attract valuations at multiples at much more than this. The same can be said for players with exposure to attractive end markets such as chemicals, food and beverages, healthcare, medical, pharmaceutical and water.

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Constantine Biller is a Partner at Shaw & Co

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