Industrial OEM Playbook
There is little doubt that the world is entering a fierce recession. Measures being taken to control and contain the spread of the coronavirus are having a devastating impact on the economies of affected countries. The effects on businesses in these countries is unforgiving, and the devastation is just starting to spread.
While the cause of this recession is different than times past, the response from manufacturers should be rooted in lessons and experiences from previous downturns. Those of us who “lived to tell the story” after 2001 and 2008 remember only too well how demand plummeted in the ensuing months after the start of the recession. Plants operated well below capacity, workers were furloughed and businesses lost revenue.
But OEMs with a strong aftermarket business saw a more muted impact on their performance. Sure, equipment sales dropped dramatically. But manufacturers with strong aftermarket franchises performed much better. In fact, aftermarket revenue dropped less than equipment revenue, and more importantly, started growing more and faster than equipment revenue as the recession ebbed. This pattern has been repeated across multiple recessions.
So what is an investor to do? Given the expected decline of capex spending in the upcoming few quarters, some savvy investors have found a silver lining in these dark times: Aftermarket Recurring Revenue businesses in these industrial OEMs. There are several reasons why.
With our years of expertise in helping top name brands increase their Aftermarket sales & service revenue, we’d like to propose tried & tested strategies that go beyond the standard cost optimizations in your portfolio companies to enable growth in these times as well building a foundation for a quick recovery.