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.
1 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.”
IM&A deal volumes over the first half of the year varied by geography. EMEA regained its pre-pandemic position as the region with the highest deal activity, followed by Asia-Pacific and the Americas.
The highest deal values were in the Americas, primarily due to some megadeals—deals with an announced deal value of US$5bn or more. These included the announced merger of US luxury electric vehicle (EV) manufacturer Lucid Motors with Churchill Capital Corp IV (US$11.8bn); the announced merger of sensor technology company FLIR Systems by Teledyne Technologies (US$7.5bn); the announced acquisition by an investor group of pest control company Anticimex (US$7.3bn); the announced merger of UK online used car dealer Cazoo with AJAX I (US$6.4bn); and the announced merger of electric aircraft manufacturer Joby Aviation with Reinvent Technology Partners (US$5.0bn). Three of these buyers were special-purpose acquisition companies, or SPACs, highlighting how significant these acquisition structures have been in the IM&A sector during the first half of 2021.
We anticipate the following will be M&A hotspots during the second half of 2021:
“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.”
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.
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.
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.
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.