High COVID-19 vaccination rates in developed economies have led to a recent resurgence in industrial production in many countries, substantially improving the outlook of CEOs across industrial manufacturing and automotive (IM&A) sectors1. Now, both corporate players and investors have a clearer perspective on future demand, and the high levels of mergers and acquisitions (M&A) activity is a sign of their optimism about 2022.
This is leading to greater confidence in investment strategies, despite a range of macroeconomic and other headwinds: COVID-19 variants, supply chain bottlenecks, commodity price increases and a global semiconductor shortage, particularly in the automotive sector. Business leaders are reviewing their portfolios to focus on new growth areas and divesting non-core assets to take advantage of robust valuations. Deals that create the most value continue to be built through capabilities-driven acquisitions and product and platform expansion.
 Industrial manufacturing and automotive sectors include aerospace and defence, automotive, business services, engineering and construction, and industrial manufacturing.
“We are seeing a record level of transactions in the industrial manufacturing and automotive sectors powered by an abundance of capital and a growing number of private equity deals. We expect M&A in 2022 to remain strong with high multiples.”
Deal volumes and values increased across all sectors of IM&A as dealmakers recovered from pandemic-induced slowdowns. Europe, the Middle East and Africa (EMEA) was the region with the most deals in 2021, recording almost 5,000 for the year, 42% higher than in 2020. Deal values were greatest in the Americas (approximately 44% of the global IM&A deal values) and increased by 144% between 2020 and 2021, to almost US$300bn, boosted by a number of US megadeals—those with a deal value greater than US$5bn. The top three IM&A deals announced in 2021 were mergers with special purpose acquisition companies (SPACs), underlining the continuing importance of these investment vehicles to M&A, particularly in the automotive sector. Private equity (PE) is playing a greater role, accounting for approximately 36% of deal volume and 41% of deal value in 2021, an increase compared with the average over the previous five years of 26% and 34%, respectively.
We anticipate the following areas will be M&A hotspots during the first half of 2022:
Tech-driven transactions. Mergers and acquisitions that accelerate digital transformation are likely to continue to dominate the market and lead to premium valuations. In PwC’s Global M&A Industry Trends in Technology, Media & Telecommunications 2022 Outlook, we discuss how tech convergence will continue to dominate M&A in 2022. In IM&A, technologies vary, but include electric and autonomous vehicles, batteries and charging technologies, additive manufacturing, next-generation materials, production with non-fossil energy sources, data-driven insights, and the tools to monitor and report environmental, social and governance (ESG) performance.
Industrial deals in hydrogen. Hydrogen technology will continue to be top of the agenda for many CEOs; start-ups in this field are very attractive for acquisition, and will likely see strong buyout competition.
Accelerated by COVID-19, digitalisation is now essential to maximise operational efficiency and leverage opportunities for new business models and revenue streams. One example is the rise of software and sensors, which have created recurring revenue opportunities from ongoing maintenance services and data analytics subscriptions.
Commodity prices have rebounded in recent months, leading corporate leaders to rethink their sourcing and pricing strategies, while closely monitoring potential signs of inflation. The strong rebound of industrial activity has created a shortage economy with direct impacts on the availability of raw materials, increases in the cost of transportation and delays in delivery, disrupting even well-organised supply chains.
Private equity (PE) continues to look for opportunities to invest; capital from family offices has grown; and SPACs generated some of the largest deals in the industry in 2021. SPAC deal activity slowed towards the end of 2021, but will continue to play a role in 2022, particularly in the automotive sub-sector.
The ESG agenda impacts most facets of the IM&A industry: energy storage and use, production processes, sustainable transport, supply chain resiliency, health and safety, cultural issues, and diversity and inclusion. Corporates must leverage innovative technologies to keep up with industry regulations and meet their ESG commitments.
“The race to exploit emerging technologies within the industrial manufacturing and automotive sectors will continue to fuel M&A in the coming year, and accelerate already elevated valuations.”
The outlook for 2022 is positive. Companies in many industrial manufacturing and automotive sectors have turned the corner, and cautious optimism in global economic growth is expected to lead to strong M&A activity in all regions. Technology and ESG-focused assets will be the most attractive, with strong competition and high multiples valuation from corporates and PEs. In order to justify higher valuations and ensure the deal is accretive to earnings, CEOs need to focus on accelerated value creation plans.
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 31 December 2021 and as accessed on 2 January 2022. This has been supplemented by additional information from Dealogic and our independent research, and 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.