Scott Jones, Chris Lanman and Michael Chang Quoted in Pitchbook on Semiconductor Industry
Managing Directors, Scott Jones, Chris Lanman and Michael Chang are featured in a Pitchbook article “Are Semiconductors Ripe for Investment?”
The semiconductor industry, valued at around $520 billion in sales last year and forecasted to potentially reach a trillion-dollar industry by the end of the decade, is attracting interest from private equity (PE) firms, particularly in Europe and North America. With governmental support, such as the US CHIPS and Science Act and the EU's European Chips Act, and demand driven by digitalization and green transition, there's growing investment in semiconductor manufacturing and related supply chain businesses. PE sees opportunities in various areas, including mid-size companies within the semiconductor supply chain, development of localized suppliers, consolidation, legacy semiconductor technologies, and training programs to address skilled labor shortages. However, there's a need for broader understanding and recognition of the industry's evolving dynamics beyond its historical cyclical nature.
“There’s a confluence of events that make semiconductors an interesting area for PE investors,” said Scott Jones, a Managing Director in consultancy Alvarez and Marsal’s Private Equity Performance Improvement practice. “You have demand trends that are becoming more predictable and parts of the market that are becoming more investable. And that is being supported by public sector engagement as governments in the US, the EU, the UK are introducing policies and funding to bring manufacturing on-shore or near-shore to create more stable supply chains.”
Chris Lanman, also a Managing Director in Alvarez and Marsal’s PE performance improvement practice, points out that in a US context “around 70% of materials, chemicals and gases used in semiconductor wafer production are purchased from Asian countries,” potentially creating the opportunity for PE to invest in developing more localized suppliers.
“For private equity, that stabilization of demand point is crucial,” said Michael Chang, also a Managing Director in the PE performance improvement team at Alvarez and Marsal. “What was leading edge 10 years ago as part of that drive to deliver smaller, faster, more powerful products, like mobile phones, those technologies are now in toasters, cars, industrial machines, etc. A whole host of products. The [research and development] is done and a plant producing those chips could run for many years.”
Tackling these massive worker shortages will be crucial if production is to be scaled up outside of Asia, says Alvarez and Marsal’s Jones. “One of the biggest concerns I hear over and over again from executives is that they don’t know how they are going to find enough skilled workers,” he said. “A big opportunity area for private equity could be the training programs to create those skilled workers.”
