Global M&A Industry Trends in Industrial Manufacturing & Automotive Sectors

Looking beyond survival: opportunities to strengthen supply chains and accelerate digital transformation through M&A

In the first half of 2020 the mergers and acquisitions (M&A) landscape saw a rise in uncertainty, leading to large-scale deal postponements and withdrawals as investors struggled with the impacts of COVID-19. In March and April, lockdowns in response to the COVID-19 pandemic triggered the near-closure of most global Industrial Manufacturing & Automotive (IM&A) sectors[1].This suppression of economic activity endured into June in many parts of the world.

The performance of the sub-sectors within IM&A has varied greatly during this period. Government-linked activity in defence, engineering and infrastructure proved less exposed, while the potential for government bailouts offered a degree of hope to the crisis-hit airline industry when it became clear that air travel will remain challenged for some time. The economic shutdown has also been particularly hard on the automotive industry, which was already in the midst of a highly disruptive period, with the shift towards autonomous and electric vehicles (EVs).

While the challenging economic situation has slowed M&A activity, areas of opportunity for dealmakers to create substantial value still exist. Strategic investors have generally focused on liquidity, cost containment and short-term portfolio protection, but are also evaluating M&A as a means of securing supply chains, expanding product offerings and strengthening their competitive position. Private Equity (PE) firms worldwide, sitting on US$1.5 trillion of dry powder, have shown particular interest in firms with tech-enabled business models or fragmented industries with signs of resilience, but many are waiting until valuations are clearer and debt financing easier to come by.

[1] Industrial Manufacturing & Automotive sectors include Aerospace & Defence, Automotive, Engineering & Construction, Industrial Manufacturing and Business Services.

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“Technology and supply-chain restructuring have become central to strategies in this sector and will drive M&A going forward.”

Paul ElieGlobal Industrial Manufacturing and Automotive Deals Leader, PwC US

M&A hotspots

We see the following trends as drivers of M&A hotspots once valuations are more stable:

  • Acquisitions and investment to strengthen supply chains:
    • Renewed focus on resilience leading to increased interest in domestic and near-shore suppliers.
    • Opportunities to acquire suppliers of established core product lines or increase presence in key markets as liquidity pressures encourage business simplification. 
  • Investments into business models that can accelerate digital transformation:
    • The business case for digitalisation has gained momentum in the recent crisis, driving interest in tech-enabled solutions and services that transform operational efficiency through process streamlining and automation.
    • Competitive pressure to innovate with new value-added revenue streams e.g. enabled by Internet of Things (IoT) connectivity. Such deals could have strong potential for cash-rich PE firms keen to capitalise on emerging trends.
  • Regulatory and sustainability-driven investment to build capabilities or strengthen supply in green tech/next-generation materials and energy, as well as digital capabilities for monitoring and reporting.
  • Mergers and acquisitions to access talent and specialised skills, particularly to ensure the best results from technology investments and sector-specific business services.
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“Many IM&A sectors have experienced significant disruption, and M&A remains uniquely positioned to bring transformation at a speed which other management functions struggle to deliver.”

Nicola AnzivinoGlobal Industrial Manufacturing and Automotive Deals Leader, PwC Italy

Key themes driving M&A activity

M&A activity to support supply chains

Manufacturers and their stakeholders have had to prioritise survival in recent months, maximising their liquidity position and overhauling operational efficiency. We expect this to result in M&A activity, driving supply-chain simplification and restructuring to remove cost, complexity and risk exposure. That includes reduced dependence on cross-border trade and shoring up of essential lines of supply – especially vulnerable are Tier 2 and 3 suppliers, who may require capital injections.

Explore the other key themes driving M&A activity.

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Refocus on the core, accelerate digital transformation 

We also anticipate large-scale divestiture of non-core activities and a rise in strategic investment in advanced technology and process automation, as well as tech-enabled managed services, to free up capital, streamline cost bases and transform operational agility.

Explore the other key themes driving M&A activity.

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Creating value beyond the deal

IM&A has a strong track record compared to other sectors for generating value from deals in both the short and long term. This is a natural result of how pivotal M&A is to many IM&A strategies, and the extensive focus and care companies in the sector apply when making decisions about which deals to pursue. Although we anticipate a rise in opportunistic M&A during this crisis, it is crucial that businesses stay true to their long-term strategic intent and are clear on all the elements of a comprehensive value creation plan.

Explore the other key themes driving M&A activity.

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Industrial Manufacturing & Automotive M&A Outlook

COVID-19 will undoubtedly continue to leave deep tracks across all IM&A sectors, directly or indirectly, in the second half of 2020 and into 2021. In this uncertain context, we recommend dealmakers consider the following steps as a framework for value preservation and creation:

  • Repair value destruction in response to COVID-19: companies in the sector have experienced disrupted supply chains and steep drops in demand as a result of coronavirus mitigation measures. A focus on short-term actions to minimise value leakage and manage stakeholders will be fundamental, alongside financial and operational restructuring.
  • Rethink how to preserve value: many IM&A sub-sectors were experiencing disruption before COVID-19 hit, and several of these trends have accelerated as a result of the recent crisis. Businesses need to reimagine the future at both a practical and a conceptual level. What does success look like now to employees, customers and stakeholders? What measures of material, social and environmental progress should be considered to regain control and assure future financial and operational security?
  • Reconfigure where to unlock value in the business: strengthening market and competitive positioning may require systemic rethinking of human, social and reputational capital. From Aerospace & Defence to Business Services, companies are evaluating their core businesses. COVID-19 has provided a rare moment of pause and may present an opportunity to reconfigure in ways that previously seemed too daunting, or impossible, to execute.

While the market will undoubtedly be challenging going forward, it is important that dealmakers remember that there continue to be significant opportunities in the Industrial Manufacturing & Automotive industry.

Read the cross-industry Global M&A Industry Trends

About the data
We have based our commentary on M&A trends on data provided by industry-recognised sources. Specifically, values and volumes referenced in this publication are based on officially announced transactions, excluding rumoured and withdrawn transactions, as provided by Refinitiv as of 30 June 2020, and supplemented by additional information from Dealogic and our independent research. This document includes data derived from data provided under license by Dealogic. Dealogic retains and reserves all rights in such licensed data. Certain adjustments have been made to the source information to align with PwC’s industry mapping. We define megadeals as transactions with a deal value greater than US$5 billion.

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Contact us

Nicola Anzivino

Nicola Anzivino

Global Industrial Manufacturing & Automotive Deals Leader, PwC Italy

Tel: +39 02 80646374

Paul Elie

Paul Elie

Global Industrial Manufacturing & Automotive Deals Leader, PwC United States

Tel: +1 313 394 3517

Brian  Levy

Brian Levy

Global Deals Industries Leader, PwC United States

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