by Gary Mintchell | Nov 6, 2019 | News
I have received news of PwC’s Industrial Manufacturing Deals Outlook. I guess you have your good news and your bad news.
From the report’s summary: While disruptive factors are prevailing and point to an economic downturn, many of the positive factors we have highlighted in our previous publications are still relevant in Q3 2019. As stated in PwC’s publication “Winning through M&A in the next recession,” the M&A environment is cyclical and has historically followed economic downturns, as capital available for deals typically decreases; however, the next recession will be different. We believe the downturn will be unlike historical downturns as disruptive economic factors are partially offset by a few positive factors, leading buyers to continue to pursue M&A activity.
Positive factors impacting the deal-making landscape in 2019:
- Record levels of dry powder from private equity funds and healthy corporate balance sheets coupled with the repatriation of cash for US-based multinationals indicate sufficient levels of capital to pursue acquisitions, which will prevent deal activity from dropping too low.
- High valuations have been a factor for the decline in deal volume from YTD 2018 to YTD 2019. However, as the economic outlook declines, valuations will likely fall, which will provide opportunities for buyers with high levels of capital. If buyers are aggressive during the downturn, M&A demand should be higher than historical downturns.
- The prominence of megadeals is reflecting a decoupling of the megadeals segment of the M&A market from the lower-growth global economic environment.
Disruptive factors likely to create a pause in deal making in 2019:
- The Chinese and US economies are pointing to economic slowdowns. Chinese GDP growth in 2019 is expected to be between 6.2%–6.4%, a decrease from approx. 6.7%–6.8% in 2018. The US GDP annualized growth in 2019 is expected to be between 1.8%–2.3%, a decrease from approx. 3%–3.5% in 2018.
- Uncertainties as it relates to length of economic slowdowns around the globe, Brexit, and the continued struggles to negotiate trade agreements and tariff concessions between the US and China, remain on the minds of deal makers.
- The PMI index has dropped to 47.8 at the end of Q3 2019, which is the lowest it has been since 2009.
PwC also captured some quick highlights below:
- Scale Transactions will Continue to be the Focus for the Industrial Manufacturing Sector
- Macroeconomic factors – the trade war, slow GDP growth and high valuations – continue to affect the M&A environment across the industrial manufacturing industry. The latest September numbers from the Institute for Supply Management also showcase the struggle the sector is experiencing with the U.S. manufacturing purchasing managers’ index coming in at 47.8%, marking the second consecutive month of contraction and was the lowest reading in more than 10 years.
- So far in 2019, M&A activity in the industrial manufacturing industry has been driven by scale transactions, which is primarily focused on product, customer and geographic expansion. We believe this trend will continue into next quarter and 2020. Here’s a breakdown of Q3 2019 M&A analysis of the industrial manufacturing sector:
- Total deal value declined by 32% to $18.1 billion when compared to Q2 2019. For YTD 2019, the deal value also declined by 16% to $64.5 billion vis-à-vis YTD 2018.
- Deal volume in Q3 2019 and YTD 2019 declined by 10% and 11% over Q2 2019 and YTD 2018, respectively.
- There was no megadeal in Q3 2019.
- All the categories within the sector saw a decline in deal value during the third quarter except the Electronic and Electrical Equipment and Rubber and Plastic Products. However, the Industrial Machinery drove M&A activity with 40% and 35% in value and volume respectively.
- North America’s deal value significantly declined by 55% in the third quarter compared to the previous quarter, but the region was the most active acquirer with 36% of deal volume, followed by Asia and Oceania.
- Although there are factors that point to an economic downturn in the near future, we believe the next recession will be different as it pertains to the M&A environment and could potentially lead buyers to continue to pursue deals.
Executive summary
Worldwide cross-sector deal value decreased 13% from YTD 2018 to YTD 2019, while deal volume remained flat at a 1% increase during the same period. Consistent with cross-sector worldwide, Industrial Manufacturing value has decreased 16% from YTD 2018 to YTD 2019. The primary driver of value decline is related to the 11% decrease in deal volume during this period, which is reflective of some of the lowest quarterly activity since Q1 2014.
Consistent with the trend noted in our Q2 2019 publication, year-to-date activity has been driven by scale transactions, which are primarily focused on product, customer, and geographic expansion. The decrease in deal volume is a result of macroeconomic factors such as the lingering trade war, anemic GDP growth around the world, and high valuations. While overall deal value has seen a decline, the aggregate value of the top ten deals year-to-date has remained stable at $30.3 billion YTD 2018 and $31.4 billion YTD 2019. As such, these macroeconomic factors have not deterred deal makers from turning to M&A to meet their strategic objectives.
Trends and highlights
- In Q3 2019, the total deal value declined by 32% to $18.1 billion when compared to Q2 2019. For YTD 2019, the deal value also declined by 16% to $64.5 billion vis-à-vis YTD 2018.
- Similar trend can be seen in terms of total deal volume. Deal volume in Q3 2019 and YTD 2019 declined by 10% and 11% over Q2 2019 and YTD 2018, respectively.
- Average deal size declined by 15% to $83.6 million in Q3 2019 compared to Q2 2019. The average deal size also declined by a mere 2% to $93.7 million in YTD 2019 vs. YTD 2018.
- Out of the top ten deals in YTD 2019, four deals took place in Q3 2019. These four totaled up to ~$9.3 billion, and accounted for more than 50% of the total deal value for the quarter.
by Gary Mintchell | Nov 1, 2019 | Manufacturing IT, Security
Internet of Things installations along with industrial control systems constitute well known cybersecurity vulnerabilities within industrial plants and operations. CyberX, the IoT and industrial control system (ICS) security company, announced the availability of its “2020 Global IoT/ICS Risk Report” designed to sharpen awareness and knowledge of this critical area.
The data illustrates that IoT/ICS networks and unmanaged devices are soft targets for adversaries, increasing the risk of costly downtime, catastrophic safety and environmental incidents, and theft of sensitive intellectual property.
Some of the top findings noted that these networks have outdated operating systems (71 percent of sites), use unencrypted passwords (64 percent) and lack automatic antivirus updates (66 percent).
Energy utilities and oil and gas firms, which are generally subject to stricter regulations, fared better than other sectors such as manufacturing, chemicals, pharmaceuticals, mining, transportation and building management systems (CCTV, HVAC, etc.).
Now in its third year, CyberX’s “Global IoT/ICS Risk Report” is based on analyzing real-world traffic from more than 1,800 production IoT/ICS networks across a range of sectors worldwide, making it a more accurate snapshot of the current state of IoT/ICS security than survey-based studies.
Including the data presented in previous reports, CyberX has now analyzed over 3,000 IoT/ICS networks worldwide using its patented M2M-aware behavioral analytics and non-invasive agentless monitoring technology.
Recommendations Focus on Prioritization and Compensating Controls
The report concludes with a practical seven step process for mitigating IoT/ICS cyber risk based on recommendations developed by NIST and Idaho National Labs (INL), a global authority on critical infrastructure and ICS security.
Experts agree that organizations can’t fully prevent determined attackers from compromising their networks. As a result, they recommend prioritizing vulnerability remediation for “crown jewel” assets — critical assets whose compromise would cause a major revenue or safety impact — while implementing compensating controls such as continuous monitoring and behavioral anomaly detection (BAD) to quickly spot intruders before they can cause real damage to operations.
“Our goal is to bring board-level awareness of the risk posed by easily-exploited vulnerabilities in IoT/ICS networks and unmanaged devices — along with practical recommendations about how to reduce it,” said Omer Schneider, CyberX CEO and co-founder.
“Today’s adversaries — ranging from nation-states to cybercriminals and hacktivists — are highly motivated and capable of compromising our most critical operational systems,” said Nir Giller, CyberX GM, CTO and co-founder. “It’s now incumbent on boards and management teams to recognize the risk and ensure appropriate security and governance processes are in place across all their facilities to address it.”
Summary of Key Findings
- Broken Windows: Outdated Operating Systems. 62 percent of sites have unsupported Microsoft Windows boxes such as Windows XP and Windows 2000 that no longer receive regular security patches from Microsoft, making them especially vulnerable to ransomware and destructive malware. The figure rises to 71 percent with Windows 7 included, which reaches end-of-support status in January 2020.
- Hiding in Plain Sight: Unencrypted Passwords. 64 percent of sites have unencrypted passwords traversing their networks, making it easy for adversaries to compromise additional systems simply by sniffing the network traffic.
- Excessive Access: Remotely Accessible Devices. 54 percent of sites have devices that can be remotely accessed using standard management protocols such as RDP, SSH and VNC, enabling attackers to pivot undetected from initial footholds to other critical assets. For example, during the TRITON attack on the safety systems in a petrochemical facility, the adversary leveraged RDP to pivot from the IT network to the OT network in order to deploy its targeted zero-day malware.
- Clear and Present Danger: Indicators of Threats. 22 percent of sites exhibited indicators of threats, including suspicious activity such as scan traffic, malicious DNS queries, abnormal HTTP headers, excessive number of connections between devices and malware such as LockerGoga and EternalBlue.
- Not Minding the Gap: Direct Internet Connections. 27 percent of sites analyzed have a direct connection to the internet. Security professionals and bad actors alike know that it takes only one internet-connected device to provide a gateway into IoT/ICS networks for malware and targeted attacks, enabling the subsequent compromise of many more systems across the enterprise.
- Stale Signatures: No Automatic Antivirus Updates: 66 percent of sites are not automatically updating Windows systems with the latest antivirus definitions. Antivirus is the very first layer of defense against known malware — and the lack of antivirus is one reason why CyberX routinely finds older malware such as WannaCry and Conficker in IoT/ICS networks.
by Gary Mintchell | Oct 19, 2019 | Automation, Internet of Things, Technology, Uncategorized
This is still more followup from Emerson Global Users Exchange relative to sessions on Projects Pilot Purgatory. I thought I had already written this, but just discovered it languishing in my drafts folder. While in Nashville, I ran into Jonas Berge, senior director, applied technology for Plantweb at Emerson Automation. He has been a source for technology updates for years. We followed up a brief conversation with a flurry of emails where he updated me on some presentations.
One important topic centered on IoT projects—actually applicable to other types of projects as well. He told me the secret sauce is to start small. “A World Economic Forum white paper on the fourth industrial revolution in collaboration with McKinsey suggests that to avoid getting stuck in prolonged “pilot purgatory” plants shall start small with multiple projects – just like we spoke about at EGUE and just like Denka and Chevron Oronite and others have done,” he told me.
“I personally believe the problem is when plants get advice to take a ‘big bang’ approach starting by spending years and millions on an additional ‘single software platform’ or data lake and hiring a data science team even before the first use case is tackled,” said Berge. “My blog post explains this approach to avoiding pilot purgatory in greater detail.”
I recommend visiting Berge’s blog for more detail, but I’ll provide some teaser ideas here.
First he recommends
- Think Big
- Start Small
- Scale Fast
Scale Fast
Plants must scale digital transformation across the entire site to fully enjoy the safety benefits like fewer incidents, faster incident response time, reduced instances of non-compliance, as well as reliability benefits such as greater availability, reduced maintenance cost, extend equipment life, greater integrity (fewer instances of loss of containment), shorter turnarounds, and longer between turnarounds. The same holds true for energy benefits like lower energy consumption, cost, and reduced emissions and carbon footprint, as well as production benefits like reduced off-spec product (higher quality/yield), greater throughput, greater flexibility (feedstock use, and products/grades), reduced operations cost, and shorter lead-time.
Start Small
The organization can only absorb so much change at any one time. If too many changes are introduced in one go, the digitalization will stall:
- Too many technologies at once
- Too many data aggregation layers
- Too many custom applications
- Too many new roles
- Too many vendors
Multiple Phased Projects
McKinsey research shows plants successfully scaling digital transformation instead run smaller digitalization projects; multiple small projects across the functional areas. This matches what I have personally seen in projects I have worked on.
From what I can tell it is plants that attempt a big bang approach with many digital technologies at once that struggle to scale. There are forces that encourage companies to try to achieve sweeping changes to go digital, which can lead to counterproductive overreaching.
The Boston Consulting Group (BCG) suggests a disciplined phased approach rather than attempting to boil the ocean. I have seen plants focus on a technology that can digitally transform and help multiple functional areas with common infrastructure. A good example is wireless sensor networks. Deploying wireless sensor networks in turn enables many small projects that help many departments digitally transform the way they work. The infrastructure for one technology can be deployed relatively quickly after which many small projects are executed in phases.
Small projects are low-risk. A small trial of a solution in one plant unit finishes fast. After a quick success, then scale it to the full plant area, and then scale to the entire plant. Then the team can move on to start the next pilot project. This way plants move from PoC to full-scale plant-wide implementation at speed. For large organization with multiple plants, innovations often emerge at an individual plant, then gets replicated at other sites, rolled out nation-wide and globally.
Use Existing Platform
I have also seen big bang approach where plant pours a lot of money and resources into an additional “single software platform” layer for data aggregation before the first use-case even gets started. This new data aggregation platform layer is meant to be added above the ERP with the intention to collect data from the ERP and plant historian before making it available to analytics through proprietary API requiring custom programming.
Instead, successful plants start small projects using the existing data aggregation platform; the plant historian. The historian can be scaled with additional tags as needed. This way a project can be implemented within two weeks, with the pilot running an additional three months, at low-risk.
Think Big
I personally like to add you must also think of the bigger vision. A plant cannot run multiple small projects in isolation resulting in siloed solutions. Plants successful with digital transformation early on establish a vision of what the end goal looks like. Based on this they can select the technologies and architecture to build the infrastructure that supports this end goal.
NAMUR Open Architecture (NOA)
The system architecture for the digital operational infrastructure (DOI) is important. The wrong architecture leads to delays and inability to scale. NAMUR (User Association of Automation Technology in Process Industries) has defined the NAMUR Open Architecture (NOA) to enable Industry 4.0. I have found that plants that have deployed digital operational infrastructure (DOI) modelled on the same principles as NOA are able to pilot and scale very fast. Flying StartThe I&C department in plants can accelerate digital transformation to achieve operational excellence and top quartile performance by remembering Think Big, Start Small, Scale Fast. These translate into a few simple design principles:
- Phased approach
- Architecture modeled on the NAMUR Open Architecture
- Ready-made apps
- East-to-use software
- Digital ecosystem
by Gary Mintchell | Oct 4, 2019 | Asset Performance Management, Manufacturing IT, Software
I guess I did attend the last GE software conference Minds + Machines. However, the reconstituted and independent GE Digital recently held a user conference where it announced a number of upgrades to its IIoT software. These are firmly within the current trends of connecting and mobility.
The product updates include:
- Predix Essentials, which makes it easier for industrial companies to connect, visualize and analyze their data
- Asset Answers, which helps customers to understand the competitive potential of Asset Performance Management (APM) software
- Webspace 6.0, a new HTML5 interface that seamlessly brings automation data to operators across any mobile device
Edge-to-Cloud Accessibility
Predix Essentials is an easy-to-use SaaS solution, helping companies connect to disparate data sources, monitor operations, and leverage edge-to-cloud predictive analytics–reducing time-to-value for operational teams looking to reduce waste, lower costs, and increase performance.
Developed in partnership with a number of customers, including silicon chip manufacturer Intel, Predix Essentials is a natural first step for industrial businesses looking to leverage the power of cloud-based Industrial IoT technologies, providing the connectivity, visualization and analysis capabilities that are the cornerstones of a digital transformation journey, regardless of vertical or maturity.
Suitable for industrial companies of all kinds, Predix Essentials is also the foundation of GE Digital’s APM and OPM application suites, providing core functionality and bridging the entire software portfolio by connecting GE Digital cloud-based solutions to on-premises data from its Automation, MES and Historian solutions.
Identifying Maintenance Strategies
Asset Answers is a benchmarking tool that helps customers quickly import and assess data to better understand how their asset maintenance compares with similar companies in their particular domain, or even against their own internal performance across sites.
With this intelligence, customers can determine where best to invest in updating maintenance regimes or capabilities, and ultimately provide a seamless path to products like APM to manage and optimize assets across their business. Asset Answers is available for many sectors, including power generation, oil and gas and chemicals.
Improving Operator Mobility
Webspace 6.0, a web and mobility solution, brings the full visualization and control capabilities from GE’s iFIX and CIMPLICITY HMI/SCADA software seamlessly across devices, including smartwatches, phones, tablets and desktops.
Offering enhanced encryption and new zero-install HTML5 client, Webspace 6.0 improves the way that operators receive and react to operational insights, whether they are in the field, on the plant floor or at a desk, providing them the flexibility to make informed decisions and share their expertise, regardless of location. By dynamically extending automation solutions, Webspace 6.0 increases information sharing across teams, speeds the right operator actions, and improves agility with real-time visualization and control anywhere, anytime.
Availability
“GE Digital continues to release innovations that forge the way for industrial customers working on transforming their operations,” said Pat Byrne, CEO of GE Digital. “By continuing to invest across our portfolio of industrial software, and by making it easier than ever for our customers to unlock the power of the Industrial IoT, GE Digital is strengthening its customers’ ability to become more productive, efficient and safe.”
Predix Essentials, Asset Answers and Webspace 6.0 are generally available today as part of GE Digital’s portfolio of industrial software products covering HMI/SCADA, Historian, Asset Performance Management and Manufacturing Execution System applications. Today’s announcements build on a strong thread of recent investments in product innovations, all designed to solve a broad range of industrial customer challenges, including iFIX 6.0; Historian 7.2, Plant Applications 8.0 and Predix Manufacturing Data Cloud for the manufacturing sector; Grid Analytics for the power transmission and distribution market; and APM Integrity’s Compliance Management for the O&G and Power Generation industries.
by Gary Mintchell | Sep 19, 2019 | Manufacturing IT, Operations Management, Software
This week saw the annual incarnation of the Ignition Community Conference from Inductive Automation in Folsom, CA focused on application of manufacturing software. The level of user conversations and idea exchanges is higher than anywhere else I attend.
I entered the building walking down the hallway amongst the exhibits of partner companies. Immediately the strength of MQTT, Sparkplug, and embedded Ignition stood out. The stands of OEMs Opto 22, Wago, EZAutomation, Moxa, Bedrock Automation, and Stratus Technologies swarmed with curious engineers.
MQTT is a light-weight messaging protocol that is now an open standard. Originally developed jointly by IBM and Arlen Nipper, now CTO of Inductive Automation partner Cirrus Link, MQTT is also widely deployed in IT applications.
Family obligations cut my stay, but I got a sense of what is important. Last year’s focus was Ignition 8, a major update to the core product. This year’s focus included the various aspects of the ecosystem that has sprung up through some patient nurturing by Inductive Automation executives.
Free training has been a hallmark. Examples cited included college student interns at customer sites taking the online class and then developing a significant application–all during their summer internship. It’s that easy to learn and develop.
Inductive has expanded its university partnerships for additional training and has also greatly expanded its international presence. Partnerships include a growing number of OEMs who package Ignition within products and systems integrators out solving interesting problems for their customers.
This is called the “Community Conference” because of the intense community of users.
By the way, customers often tell me that the product is rock solid, but what convinced them to change software suppliers–not an easy undertaking–is the innovative pricing model originally developed by founder (and president/CEO) Steve Hechtman. The model drives cost of ownership down for customers, and, while Inductive Automation is a private company and does not release financials, when I pump Steve for information, he smiles broadly.
Oh, and competitors are trying to find a way to compete with their pricing. That should be interesting.
Many, if not most, companies I cover are earnestly trying to build an ecosystem of partners. Inductive Automation patiently assembled an impressive one.
[Disclaimer: Inductive Automation is my major sponsor, but I’m not paid to be anything but my usual objective, analytical self observing the industry.]
