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Global M&A Trends in Industrial Manufacturing & Automotive: 2021 Mid-year Update

Increased optimism creates deal-making opportunities as companies look to accelerate growth and long-term value through digital transformation.

Increased vaccination rates and the easing of COVID-19 restrictions in many countries have lifted economic forecasts and improved the outlook of CEOs in the industrial manufacturing and automotive (IM&A) sectors.1 For businesses and investors alike, the uncertainty that characterised most of 2020 appears to have been replaced with a clearer vision of future demand.

With that in mind, many companies have already reassessed their strategies and are looking to M&A to realign their portfolios accordingly to create value. The most successful among them will be those with the financial strength and strategic foresight to take advantage of deal-making opportunities and execute on structured value-creation plans.

Industrial manufacturing and automotive sectors include aerospace and defence, automotive, business services, engineering and construction and industrial manufacturing

“Recovery in the industrial manufacturing and automotive sectors will revolve around deal-making. Businesses looking for growth to put the pandemic behind them need to execute on a clear value creation plan.”

Nicola AnzivinoGlobal Industrial Manufacturing and Automotive Deals Leader, Partner, PwC Italy

M&A hotspots

We anticipate the following will be M&A hotspots during the second half of 2021:

  • M&A transactions that accelerate digital transformation are likely to command a premium. These include solutions that increase operational efficiency via automation or that help companies leverage low-touch, digital go-to-market channels. Enablers of new value-added revenue streams are also likely to command a premium.
  • Innovative technologies that help companies keep up with industry trends, regulations, and environmental, social and governance (ESG) commitments. These technologies vary by industry but include batteries, autonomous vehicles, additive manufacturing, next-generation materials, production with non-fossil energy sources, and the tools to monitor and report ESG performance
  • Talent acquisitions for specialised skills, particularly in technology or engineering.
  • Original equipment manufacturers (OEMs) will continue to undertake acquisitions and investment to strengthen and build more resilient supply chains.
  • One area to watch could be automotive deals in the hydrogen space. Early deals have centered around start-ups, so it may be too soon to call it a hotspot—but it’s certainly interesting enough to keep an eye on.

“SPACs have shown significant interest in the automotive, aerospace and manufacturing sectors—initially focusing on many of the new innovative technologies which have yet to come to market but carry enormous potential.”

Paul ElieGlobal Industrial Manufacturing and Automotive Deals Leader, Partner, PwC US

Key themes driving M&A activity

Increased availability of capital

Greater capital availability is supporting increased M&A activity. Private equity (PE) continues to look for opportunities to invest, capital from family offices has grown, and SPACs have generated some of the largest deals in the industry in the first half of 2021. SPACs typically target assets in hot, tech-enabled segments and are often seen as willing to take on higher risk investments than PE, such as companies which may be loss-making and/or pre-revenue. We believe SPAC deal activity will extend into the second half of 2021 and into 2022, fuelled by approximately 400 SPACs actively seeking an acquisition target via M&A.

We also expect an increase in capital available for investment in Europe through the €2.0tn (US$2.4tn) stimulus package comprising the EU’s long-term budget, coupled with NextGenerationEU’s Recovery and Resilience Facility (RRF), aimed at rebuilding post-COVID-19. The package aligns with the IM&A sectors’ focus on increasing tech-enablement and digitalisation, as well as a growing need to proactively address ESG issues—all areas where strategic M&A activity can support growth.

key-themes

Industry convergence between IM&A and technology

Technology adoption is by no means a new trend for industrial manufacturing and automotive companies, but the challenges posed by COVID-19 accelerated the urgency of transformation. Digitalisation gives companies the opportunity to both improve operational efficiency and access new revenue streams. Businesses across sectors are embedding software and sensors into their products and components—elements that facilitate the sale of ongoing maintenance services and data analytics subscriptions. This is blurring the lines between industries.

Environmental, social and governance performance in focus

ESG concerns are becoming a standard part of deal discussions, reflecting their anticipated impact on businesses and consequently being factored into strategy and valuations. Particular areas of focus for IM&A include energy use, production process innovations, EV battery and fuel cell adoption, supply chain resiliency, health and safety, cultural issues, and diversity and inclusion. The engineering and construction industry, for example, faces increased regulation around energy-efficiency and growing demand from customers to meet certain ESG standards, as the customers themselves look to measure their own progress on the transition to net zero.

Industrial Manufacturing & Automotive M&A outlook

The outlook for the second half of 2021 suggests that companies in many industrial manufacturing and automotive sub-sectors will see a return to growth. With innovation creating disruption in several sub-sectors, companies will likely look to M&A to fill capability gaps. Investor demand from corporates, PE and more recently from SPACs for technology-focused assets has increased competition. In order to justify higher valuations and to ensure the deal is accretive to earnings, CEOs need to remain disciplined and focused on the value potential of a deal.
value creation illustrations

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 2021 and as accessed on 5 July 2021. This has been 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.

Contact us

Nicola Anzivino

Nicola Anzivino

Global Industrial Manufacturing & Automotive Deals Leader, PwC Italy

Paul Elie

Paul Elie

Global Industrial Manufacturing & Automotive Deals Leader, PwC United States

Darren  Jukes

Darren Jukes

UK Industrial Manufacturing & Automotive Deals Leader, PwC United Kingdom

Marc Wintermantel

Marc Wintermantel

Germany Industrial Manufacturing Deals Leader, PwC Germany

Thomas Steinberger

Thomas Steinberger

Germany Automotive Deals Leader, PwC Germany

Mendy Wang

Mendy Wang

China Industrial Manufacturing Deals Leader, PwC China

George Lu

George Lu

China Automotive Deals Leader, PwC China

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