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

Driving value for the future: Opportunities to accelerate digital transformation and create long-term value through M&A

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:

  • Government support schemes that cushioned the pandemic’s impact on industrial manufacturing and automotive companies through much of 2020 were extended in many parts of the world, but it’s unclear how long they can be sustained. The end of these programmes will likely lead to an increase in distress and restructuring-led M&A activity, particularly in industries such as commercial aerospace where demand is unlikely to recover for several years.
  • The value of consolidation is increasingly apparent, and we expect further deal activity as a result. In some industries, the benefits of scale go beyond classic cost efficiencies. Larger automotive suppliers, for example, are managing the risk associated with digital transformation more easily than smaller players are.
  • As executives face the challenge of delivering growth in 2021 and beyond, M&A may provide the opportunity they need, even in flat and declining markets. Winners will be those with the financial strength and strategic foresight to take advantage of dealmaking opportunities and execute on structured value creation plans.

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”.

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

M&A hotspots

We anticipate the following areas to emerge as M&A hotspots in 2021:

  • Original equipment manufacturers (OEMs) will continue to focus on resilience for the foreseeable future, relying on acquisitions and investment to strengthen their supply chains.
  • 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. These include sensors and software that can be embedded into products and components—elements that facilitate the sale of ongoing maintenance services and data analytics subscriptions.
  • Innovative technologies that help companies keep up with industry trends, regulations, and environmental, social and governance (ESG) commitments will form another hotspot. These technologies vary by industry but include batteries, autonomous vehicles, additive manufacturing, green tech/next-generation materials and energy, and the tools to monitor and report ESG performance.
  • M&A investments in talent and specialised skills, particularly to ensure the best results from technology investments, will be another focus of interest.

“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.”

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

Key themes driving M&A activity


Industry convergence as COVID-19 accelerates digital transformation

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.

key-themes


Increased availability of capital

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.

Environmental, social and governance performance in focus

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.

Industrial Manufacturing & Automotive M&A outlook

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:

  • Act now to recover. When facing uncertainty, decisive action counts. Taking control by leveraging restructuring and recovery services early will give dealmakers more strategic options.
  • Rethink today. Reinvent tomorrow. Industries need to reconfigure their businesses to meet the new demands of customers and other stakeholders. Whether it means digitalising sales and delivery processes for a low-touch environment or re-evaluating portfolios through a capability lens, COVID-19 has accelerated the need for transformation.
  • Embrace the new value ecosystem. Non-traditional sources of value, such as resilience, purpose and ESG compliance, have gained prominence in recent months. Companies need to evaluate what this means for their business or risk a significant impact on value in the future.

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.

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

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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