Private Equity Firms, The Time To Invest in Manufacturing is Now

Article by John Haddox, COO at Decision Resources

The manufacturing industry is ripe for a makeover: The current administration’s tariff announcements rouse supply chain relocations, customer demand invokes constant innovation, and expanding manufacturing investments spread optimism across the industry. According to the National Association of Manufacturers, at the close of 2024, 70.9% of respondents were positive about their company’s outlook, up from 62.9% in Q3. This presents a golden opportunity for private equity (PE) firms to disrupt the sector.

National and global manufacturers are already aggressively scaling operations. US pharmaceutical manufacturer, Lilly, unveiled an ambitious plan to invest $27 billion to build four new production facilities in the US. Meanwhile, Taiwan Semiconductor Manufacturing (TSMC) invested a whopping $100 billion to support the construction of five semiconductor facilities that will supply the likes of Nvidia and Apple as part of Trump’s efforts to make the US an AI hub. Investment in facility improvements and streamlining manufacturing processes with technology for better planning, optimized production, and real-time adjustments, accelerates manufacturers’ development cycles and ROI.

Still, digital overhauls cannot happen overnight, and simply throwing capital at the problem isn’t enough. PE firms need to partner with leading technology consultants and manufacturers to build a well-defined strategy coupled with targeted investments. Those who strategically invest in innovation can streamline operations and position their portfolio companies for long-term growth.

Technology reshaping manufacturing

Deloitte’s 2025 outlook found manufacturing companies significantly increased their technology spending in 2024, allocating 30% of their operating budgets compared to 23% in 2023. Cloud, generative AI, and 5G offered the highest returns. The global AI in manufacturing market was worth $513.6 million in 2017 and is projected to reach $15,273.7 million in 2025, growing at a CAGR of 55.2%. By region, Asia-Pacific is projected to register the highest CAGR of 57.2%, followed by North America.

Notable manufacturing AI applications include material movement, predictive maintenance and machinery inspection, production planning, and quality control and reclamation. A July 2024 IDC survey found that 30% of Asia-Pacific manufacturers consider advanced planning and scheduling (APS) solutions crucial for meeting their operational KPIs.

Emerging technologies such as natural language processing (NLP) and generative AI are also entering the scene. World Emblem, a patch manufacturer, is dedicating a quarter of its tech budget to generative AI, expecting ROI within a year. They’re using AI to automate the conversion of hand-drawn designs to vector images and aim for a 15% production increase.

In a manufacturing environment, where production and sales happen concurrently, minute-by-minute insights into production, demand, and resources are absolutely critical. Cloud, AI, and emerging technologies are helping deliver automation and real-time visibility, offering PE investors an opportunity to capitalize on next-generation manufacturing capabilities.

Challenges and how PE firms can overcome them

Despite the opportunities, investing in manufacturing innovation comes with challenges that PE firms must navigate:

High capital requirements – Investors like Canadian Solar are pumping in over $250 million to support solar solutions in a Mesquite, Texas facility, for example. Structured financing and strategic partnerships can help mitigate financial risk.

Resistance to change – Legacy manufacturers may resist modernization efforts. PE firms must implement strong leadership teams and change management strategies to drive adoption.

Integration complexity – Implementing new technologies can disrupt existing operations. A phased approach with pilot programs and scalable implementation is key.

Regulatory and ESG compliance – Trends towards circularity and renewable energy sources require additional thought and funding.

Why manufacturing is a smart PE play

Strategic investments in manufacturing automation and sustainability not only drive operational improvements but also enhance overall portfolio value. PE firms can increase margins and efficiency by streamlining operations and reducing waste. These tech-enabled, scalable manufacturing firms will help ensure resilience against market volatility and command higher multiples in M&A and IPO scenarios. Purchasing and supply executives expect a 4.2% increase in overall revenues in 2025.

The manufacturing sector is at a pivotal moment; a prime time for PE firms to encourage positive through software innovation. However, innovating every product and software across a manufacturing operation is often capital-intensive and complex. Partnering with consulting firms who understand the complexities and nuances of manufacturing as well as the private equity landscape are uniquely positioned to help you disrupt the industry and maximize your investments. By capitalizing on emerging technologies with a strategic plan, PE investors can create lasting competitive advantages, and generate substantial returns while focusing on reducing both the risk and the financial burden. Adopting this approach invites gradual and continuous improvement, making innovation and scalability more attainable and sustainable for your firm.