How do you manage labor today?

The G2 View on Industrials & Manufacturing Labor Challenges

This relatively simple question has become increasingly hard for industrials, manufacturing, and distribution companies to answer. For these firms, it is extremely complex to source, manage, train, and incentivize the right workforce today.?

This isn’t just a COVID story—it is one that has roots decades ago. The US has been outsourcing skilled labor, such as heavy blue-collar labor and engineering jobs, for decades. As our country moves to bring these jobs back home, we are experiencing a shortage in the types of workers needed for industrials and manufacturing jobs. Meanwhile, supply chain disruptions and broadly rising prices are exacerbating the situation.?

How are industrials, manufacturing, and distribution companies dealing with labor challenges today?

• Addressing the problem through M&A:?In addition to focusing on tuck-in acquisitions that expand key areas of the workforce, some companies are looking to acquire businesses outside of their existing geographies to enter better labor environments.
• Continuing to automate:?Automation has become a buzzword, but it doesn’t have to be an all-or-nothing proposition. Sometimes automating production capabilities can be as simple as updating the interface to make existing processes and employees more efficient.?
• Rethinking shift structures:?Some companies have found success thinking outside of the box when it comes to employees’ shifts—for example, offering employees the option to work four 10-hour shifts instead of five eight-hour shifts in a week to limit their commute time.
• Getting creative about training:?Many companies offer training, which can vary significantly by region. But some companies are going a level deeper to help them train employees, such as seeking local government grants to retrain employees in the community.
• Focusing on wages plus the small things:?Wages are an obvious lever for attracting the employees you need. But other benefits—even small ones like employee appreciation lunches—can give companies an edge in recruiting and retaining their team.

How are labor issues affecting the M&A environment?

When considering potential acquisitions in the industrials, manufacturing, and distribution sectors today, buyers are ratcheting up their due diligence on companies’ ability to recruit, retain, and incentivize employees. A demonstrated ability to continuously build and maintain the right workforce directly impacts how an acquirer will discount its future ability to deliver products and services.

In addition to labor challenges, these companies are faced with supply chain issues and generally higher costs. Acquirers may have given companies the benefit of the doubt during the thick of the pandemic, but they won’t provide as much slack today. Industrials and manufacturing companies need to be prepared to demonstrate how they will be able to deliver their expected growth rates, including whether they can pass price increases associated with labor cost inflation on to their customers.?

“Buyers are starting to push back and dig in further when due diligencing investment opportunities in the industrials sector today. Companies should be prepared to defend their growth projections and demonstrate their ability to achieve forecasted cost structures in the face of labor and material cost inflation.”

–?Victoria Arrigoni, Managing Director and Head of Industrials & Manufacturing, G2 Capital Advisors

How do these trends affect you?

Our industrials & manufacturing team would welcome the opportunity to share our perspectives on today’s environment. We can help you revisit your strategic roadmap and consider decisions like whether to relocate, refinance, or sell your business or continue to grow through acquisitions.?Contact us?to start a conversation today.