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Industrial manufacturing: US Deals 2024 outlook

Manufacturing M&A poised to grow in 2024

Overall deal volume and value fell in 2023 relative to 2022, which had been lower than 2021’s record high. Transactions in 2023 were largely aimed at addressing acquirers’ strategic gaps and/or expanding their capabilities. While there were industrial manufacturing mega deals (greater than $5 billion in enterprise value) in 2023, there were fewer of them compared to 2022.  

Companies are increasingly undertaking thorough portfolio reviews as they seek to divest non-core assets and market dynamics continue to give buyers pause with respect to making acquisitions. These dynamics include macroeconomic uncertainty, the high cost of borrowing, and still-high valuations. A rebound in M&A activity will most likely require improved macroeconomic clarity, increased corporate confidence, and stable financing markets. Once these requirements are met, we expect the rebound in activity to be accelerated due to the preparatory work currently being performed by prospective sellers. 

For deals currently being completed, buyers are seeking to mitigate risk, often through purchasing smaller, strategic assets and/or structuring deals in unique ways (such as making greater use of private capital and earnouts).  

We anticipate industrial manufacturing deal activity in the first half of 2024 to be stable relative to 2023, followed by an increase in activity later in the year.  

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Note: The primary M&A data source used in the year-end outlook is S&P Capital IQ. This is a change from our past outlook reports.​

Key deal drivers

Strategic M&A provides opportunity amid economic uncertainty

Global and domestic economic uncertainty underpins the current slowdown in M&A activity. Given this uncertainty, most companies are continuously evaluating their supply chains to consider how potential future conflicts and other external factors are expected to impact their ability to meet demand.

This creates opportunities for companies that strategically engage in M&A to diversify their geographic footprints, enabling them to better navigate changing trade dynamics, acquire suppliers, and onshore or nearshore capabilities and/or manufacturing capacity. Corporates and portfolio companies continue to have an advantage with strong balance sheets (despite pressures on the P&L) – supporting the continued current level of deal volume ahead of an expected uptick in 2024.

Improving efficiency through business reinvention

Industrial manufacturing companies are looking to M&A to improve efficiency and drive margin improvement through an array of technology and business model enhancements.  

With respect to technology, companies are seeking digital assets, for example, with the establishment of “smart” factories. They are increasing investment in automation, predictive maintenance, artificial intelligence, 3D printing, and other technologies. Regarding business model evolution, companies are increasingly seeking acquisitions that help enable them to migrate to virtual and/or remote plant operations, and even offering manufacturing-as-a-service to consume unused capacity and drive higher levels of utilization and profitability.

Companies are also looking to build redundant manufacturing capabilities in multiple regions or countries to cope with fragmented and potentially disrupted global supply chains. For industrial manufacturing, M&A can be the preferred approach to achieving this strategic objective as greenfield investment typically requires longer timelines to generate economic returns.

Sustainability increasingly important in growth target opportunities

Sustainability,  specifically environmental sustainability, is increasingly important in identifying, evaluating, and prioritizing industrial manufacturing target opportunities. Underneath the sustainability umbrella, climate change, technological disruption, demographic shifts, a volatile geopolitical environment, and social instability all are reshaping the business environment. Within the context of M&A, companies are seeking assets that meet certain sustainability standards and, equally important, help the acquirer attain its own sustainability mandates.

While sustainability factors continue to evolve in their scope and impact, it is a growing consideration for companies seeking to grow through M&A, with varied levels of magnitude across industries and geographies. We expect sustainability considerations to increase in relevance for M&A decision-making in 2024 and beyond.

Divestitures influencing capital allocation decisions

Leaders are seeing returns on capital through achieving the right balance of divesting to reinvest and identifying transformative acquisitions of all sizes. Given macroeconomic uncertainty, we anticipate minority and early investments will help fuel industrial manufacturing M&A in the near- to medium- term. Corporates are expected to continue to be advantaged due to their ability to use higher levels of equity and pay for to-be-realized synergies. Corporate divestitures are expected to accelerate as corporates seek to raise capital to fund growth.

“We are optimistic that industrial manufacturing deal volumes will continue at stable levels into 2024 with activity levels growing throughout the year as market uncertainty and related challenges stabilize.”

— Michelle Ritchie, Industrial Products Deals Leader

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