Making strategic acquisitions to achieve growth

During the prolonged downturn, manufacturers grew accustomed to doing business in survival mode. Nonetheless, long-term drivers of deals in the segment, such as globalisation and consolidation, are structural rather than cyclical. Industrial Manufacturing companies use M&A as a means to rationalise operations, focusing on core activities and assets through acquisitions, divestitures, carve-outs, privatisation and other transactions. At an industry level consolidation helps the sector improve its financial strength, increase negotiating power with customers and suppliers, and boost capacity utilisation.

Fundamentals are ripe for a recovery (albeit gradual) in the deal environment. In many markets, credit is loosening, equity markets are advancing, and economic growth rates are stabilising. As economic recovery strengthens, stakeholders will be asking companies how they intend to grow. Deal making might offer the leverage industrial manufacturing companies need to push ahead of the competition.

To make the right deal, manufacturers must consider how two years of economic contraction have altered the balance of supply and demand and elevated the importance of due diligence. Climate change, commodity prices, pension plan structures, changing tax laws, company culture, and the role of human resources must be factored into today's due diligence process.

Cash conservation, cost containment, and margin expansion remain relevant considerations. With valuations depressed relative to historical levels, companies with strong balance sheets and robust cash reserves are in the best position for strategic M&A. For strategic buyers with the ability to manoeuvre in a challenging environment, M&A will offer the best way to expand into new markets, innovate, or broaden products and capabilities when their peers may be struggling to improve fundamentals.

Our quarterly M&A publication, Assembling Value, provides analysis of global merger and acquisition activity in the industrial manufacturing industry. Each edition includes a review of overall deal activity for the quarter and year-to-date and a summary of large deals.

How PwC can help you

At PwC we provide a full range of transaction services, assisting on acquisitions, divestitures, carve-outs and many other transactions. Whatever your requirement – be it Strategy, Financial Due Diligence, Private Equity, Corporate Finance, Technical Accounting, Reporting and Auditing, M&A pre- and post–transaction services, international tax planning or risk management – we have a team in place to assist you. We also provide cost effective solutions to help emerging players from the BRIC countries understand new manufacturing markets, barriers and risk of entry, and challenges of doing business in new markets.