Dealmakers continue to grapple with uncertainty, much as they did through most of 2020. After a summer of eased restrictions in some locations, rising infection rates around the world triggered new waves of national and regional lockdowns in November, December and January. Unlike in previous lockdowns, many territories exempted the construction and manufacturing sectors from these restrictions. In light of these developments, the deals landscape in the industrial manufacturing and automotive (IM&A) sectors1 in 2021 will be influenced by several factors:
1 Industrial manufacturing and automotive sectors include aerospace and defence, automotive, engineering and construction, industrial manufacturing, and business services.
“Previous downturns have shown that those businesses that actively take control of their future by executing on a clear value creation plan outperform their peers. M&A, alongside business transformation, plays a key part in delivering value”.
Mergers and acquisitions in the industrial manufacturing and automotive (IM&A) subsectors sustained an uneven recovery in 2020. Overall global deal volumes grew 15% in the second half of 2020, compared to the first half of the year but remained 7% down on the second half of 2019.
The recovery of deal volumes varied by region. Performance in Asia Pacific dropped sharply in October, but then recovered in November, with overall deal volumes in the second half of 2020 in line with the same period in 2019. Deal volumes also recovered in the Americas and EMEA, although rising COVID-19 infection rates slowed some M&A activity. In EMEA, for example, where a series of new national lockdowns were put into place across many countries, the last six months of 2020 saw 21% lower deal volumes than in the second half of 2019.
Despite this drop in volumes, M&A deal values have held up during the second half of 2020 and are in line with the prior year, largely driven by deals in the Americas.
We anticipate the following areas to emerge as M&A hotspots in 2021:
“Our industry is experiencing disruption as innovative technologies redefine markets and customer expectations. M&A offers a crucial lever to deliver this digital transformation at speed.”
Technology adoption is by no means a new trend for industrial manufacturing and automotive companies, but the challenges posed by COVID-19 have 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 goods and adding data analytics products to their portfolios, blurring the lines between IM&A and technology industries.
The recovery of M&A activity has been bolstered by greater capital availability. Banks are once again lending, and private equity (PE) is looking to deploy a significant amount of ‘dry powder’. In the US, special-purpose acquisition companies (SPACs) have risen in popularity, generating some of the largest deals in the industry. SPAC deals typically target high-performing assets in hot, tech-enabled segments, such as light detection and ranging and batteries.
ESG concerns are becoming a standard part of deal discussions, reflecting their anticipated impact on businesses. Particular areas of focus for IM&A include energy use, supply chain resiliency, health and safety, and diversity and inclusion. The engineering and construction industry, for example, faces growing demand for sustainable, energy-efficient structures. These structures increase direct costs, but companies must build them to remain competitive. Many private equity firms have established their own ESG criteria for allocating capital and assessing potential M&A transactions. Assets which perform poorly from an ESG perspective may see smaller bidder pools in the future and a decline in value.
The 2021 outlook suggests that companies in many industrial manufacturing and automotive subsectors will have trouble achieving revenue growth. A focused plan for value preservation and creation is therefore key. We recommend that dealmakers adopt the following strategies:
While 2021 is likely to be characterised by stops and starts, the marketplace will continue to offer significant opportunities for dealmakers.
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 2020 and as accessed on 3 January 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.
Global Industrial Manufacturing & Automotive Deals Leader, PwC Italy
Tel: +39 02 80646374
Global Industrial Manufacturing & Automotive Deals Leader, PwC United States
Tel: +1 313 394 3517
UK Industrial Manufacturing & Automotive Deals Leader, PwC United Kingdom
Germany Industrial Manufacturing Deals Leader, PwC Germany
Germany Automotive Deals Leader, PwC Germany
China Industrial Manufacturing Deals Leader, PwC China
China Automotive Deals Leader, PwC China