Industrials Outlook: From Trade Headwinds to Tech Tailwinds by harborviewadvisors

Industrials

Q2 2025 REPORT

Industrial Insights

The Trend

INDUSTRIAL TECHNOLOGY

Industrial Technology continues to outperform, with median public trading EBITDA multiples expanding from 14.3x in Q2 2024 to 18.5x in Q2 2025, marking the largest valuation gain among all three subsectors. Transaction volume also improved, with 187 deals in Q2, up from 168 in Q1, signaling renewed buyer momentum. Demand remains strong for automation, software, and digital infrastructure capabilities.

INDUSTRIAL SERVICES

Industrial Services saw a modest valuation adjustment, with median public EBITDA multiples contracting from 14.7x in Q2 2024 to 14.4x in Q2 2025. While not as sharp as the other sectors, this decline reflects ongoing investor scrutiny and normalization of pricing following peak levels in 2021. Despite this, buyer interest remains strong as Q2 transaction volume ticked up to 207 deals, slightly above Q1’s 203, and financing activity rebounded to $5.7B, indicating improved capital deployment.

TRADITIONAL INDUSTRIALS

Traditional Industrials saw a valuation rebound, with median EBITDA multiples rising from 11.6x to 12.4x year-overyear. Q2 transaction volume climbed to 293 deals, the highest among all three subsectors. The segment continues to attract strategic and infrastructure-focused buyers targeting businesses with steady cash flows, contract visibility, and recession resilience. While public equities declined 4% over the past year, performance was pressured by tariff-driven cost inflation and supply chain concerns, particularly in manufacturing. Still, M&A activity remains strong as private buyers focus on long-term fundamentals.

Industrials Industry Commentary

“We still expect FY25 volume growth, though market uncertainty and trade policy changes increase the range of possible outcomes.”

– Joe Hinrichs, CEO and President; CSX

“ When it comes to the market, I would say that the business environment was more or less unchanged compared with the first quarter. Our broader markets remain fundamentally strong as the world turns to electric power and automation. And just like in Q1, we live with the added layer of uncertainty in terms of potential tariffs.”

–

Morten Wierod, CEO; ABB Group

“To summarize, our first-half results were ahead of our initial expectations. Our backlog is at a record high. This performance underscores our confidence, and as a result, we are increasing the midpoint of our EBITDA and EPS guidance for a second consecutive quarter.”

– Troy Rudd, CEO; AECOM

Industrial Summary & Outlook

Tariff uncertainties in the lower Middle market

Tariffs are shaping the lower middle market industrial landscape in 2025

With new tariffs on imports from key trading partners such as the UK, broader Europe, China, India, and others, companies that rely on global supply chains - specifically for steel, aluminum, and EV components - are facing higher input costs and tighter margins. For industrial businesses, especially those under $150 million in revenue, there is less flexibility to absorb these shocks or reengineer sourcing overnight. Many are getting squeezed from both ends: higher costs on materials, and slower purchasing decisions from customers unsure how prices will settle.

Tarriff uncertainty has affected M&A transaction volumes

Deal volume in the lower middle market cooled down in the first half of the year, as buyers and sellers alike hit pause to assess how tariffs might impact future earnings. Tariff risk became a frontand-center issue during ACG’s DealMax in Las Vegas, where “Liberation Day” dominated nearly every one of our panel and hallway conversations. For private equity groups, tariff exposure has become a core part of due diligence. They’re asking tougher questions around sourcing, pricing power, and even potential customs liabilities. When deals do happen, they’re more likely to include tools like earnouts or seller notes to hedge against near-term volatility.

There is a shift in how deals are getting done

With tariff rules in flux and trade policy uncertain, more buyers are modeling multiple scenariosbest case, worst case, and somewhere in between. Some are negotiating downside protection into their deals, while others are simply walking away from anything too exposed to overseas markets. If a company can show a stable domestic footprint, solid margin control, and limited exposure to imports, it can still command strong interest. Buyers are assessing tariff exposure throughout the transaction process:

Representations and Warranties

• Tariffs and margins affect valuation

• Businesses with domestic sourcing and onshoring strategies are gaining attention

• Purchase prices, earnouts, and contingent payments are adjusted as cost structures shift

• Buyers are digging into suppliers and customers to determine tariff sensitivity

• Scrutiny is placed on vendor concentration and cross-border flows of supplies or services

• Traditional representations and warranties may not accurately disclose exposure to tariff risks

• Insurers are seeking indemnity provisions that are robust enough to encompass tariff-driven losses

Tariffs are not killing deals – but they are forcing both sides to be more deliberate

For lower middle market industrials, preparation is critical; companies that have a firm grasp of their cost structure and demonstrate operational resilience are still attracting serious interest. For buyers, the challenge lies in identifying businesses capable of weathering a volatile trade environment. While transactions are still getting done, the path from LOI to close is taking longer, driven by extended diligence cycles focused on tariff exposure and margin sustainability.

Key Economic Indicators

Source: Board of Governors of the Federal Reserve System

Source: U.S. Bureau of Labor Statistics

Spending (Non-Residential)

Source: Board of Governors of the Federal Reserve System

$500,000 $600,000 $700,000 $800,000 $900,000 $1,000,000 $1,100,000 $1,200,000 $1,300,000 $300,000 $400,000 $500,000 $600,000 $700,000 $800,000 $900,000 $1,000,000 $1,100,000

Source: U.S. Census Bureau

Total Construction Spending (Residential)

Source: U.S. Census Bureau

Industrial Public Trading Statistics

Harbor View’s Industrial Sub-Sectors

• Specialty Equipment & Devices

• Data Capture & Analysis

• Technology Enabled Solutions

• IIoT / Robotics

• Design & Engineering

• Environmental Solutions

• TICC

• Facility & Site Services

• Manufacturing

• Distribution / Logistics

• Installation & Construction

• Utilities & Telecom