I had the pleasure of sitting down with Geoff Ling, Managing Director at Merrimack Group, at LEDucation, to talk about his predictions for M&A trends, looking forward. Merrimack Group provides M&A services to the lighting industry.

Shiller: What are the overall trends that you’re seeing in lighting industry M&A, big picture?

Ling: I started out in the industry in the 1980s, so it’s been a long time. If you go back over several decades, the macro trend, if you like, is obviously with LEDs being a disruptive technology.

LEDs being a disruptive technology, lots of people started up companies, and now things are maturing a bit, but there are a lot more players, so it’s just a lot more fragmented than it used to be.

It used to be about the top four or five lighting manufacturers, and now there are lots and lots of $10, $20, $30 million companies out there. I’d also argue that as the technology is maturing, it seems there are about twenty companies making the same kind of product, and so to me there’s an inevitable wave of consolidation coming to the industry.

I think the other big trend that’s been happening and will continue is the private equity (PE) driven companies, either looking for a platform, a standalone company, or bolt-ons for an existing platform. We find that drives about two-thirds of the M&A activity in North America.

Shiller: You mentioned PE driven acquisitions. Do you see them speeding up, slowing down, remaining steady in 2024, or looking ahead in the median term?

Ling: I think last year, there was a bit of softness mainly due to interest rates going up, obviously, and also concerns about an imminent recession. Last year, the concern was when will rates go up and how much? And now the question is when will they start going down and how much?

So that’s definitely going to ease concerns in the private equity community. I also think the recession concern hasn’t completely gone away, but we seem to be on a path for a soft landing. So I think the recession concern is also receding.

Shiller: Are there specific types of manufacturers that you see gaining the most interest from acquirers? Spec grade luminaires? Certain types of controls? Circadian? Other?

Ling: If you look at the big historical conglomerates, they’re more interested in moving to the high end of the market, specification grade products, mainly because it’s such a bloodbath on the lower-end commodity products, and it’s very difficult to beat the commercial manufacturers in China for commodity products, anyway, so it’s increasingly difficult to compete.

Obviously, cost is ultra-competitive, so it’s all about service. It’s very difficult to differentiate in that commodity segment of the market. In emerging areas, my view is we’re still in the early days with things like circadian, PoE, IoT, etc. All those things have generated a lot of buzz for a long time, but I don’t see a lot of commercial traction yet in those segments, but time will tell.

Shiller: You mentioned the fairly broad expectation that interest rates are likely to come down this year, eventually. How do you see that impacting M&A?

Ling: It will make PE firms, and strategics too, but especially PE firms, come back into the M&A market. Not that they’ve gone away completely, but they’ll be more aggressive and obviously lower interest rates will help valuations too. The cheaper the debt, the more aggressive they can be on valuations in their bidding.

Shiller: Are there any other technologies that you see a lot of M &A interest in or activity in? Like horticultural lighting? Other ag lighting? Medical light therapy?

Ling: Yes, horticulture is an interesting segment, and controlled environment agriculture (CEA) are emerging areas. CEA has had a lot of VC money, a lot of hype, and there have been a lot of spectacular failures. I’m not sure the economics are there, just yet, for most crops. There will be some industry shakeout. Having said that, I think there’s a long-term opportunity, in certain parts of the world, especially where electricity is cheap, it can be economically viable.

Special thanks to Geoff Ling for sharing his time and expertise with LightNOW readers. You can learn more about Merrimack Group here.

David Shiller

David Shiller is the Publisher of LightNOW, and President of Lighting Solution Development, a North American consulting firm providing business development services to advanced lighting manufacturers. The ALA awarded David the Pillar of the Industry Award. David has co-chaired ALA’s Engineering Committee since 2010. David established MaxLite’s OEM component sales into a multi-million dollar division. He invented GU24 lamps while leading ENERGY STAR lighting programs for the US EPA. David has been published in leading lighting publications, including LD+A, enLIGHTenment Magazine, LEDs Magazine, and more.

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