2024 Outlook

Global M&A Trends in Industrial Manufacturing & Automotive

Global M&A Trends in Industrial Manufacturing and Automotive Sectors hero image
  • Insight
  • 6 minute read
  • January 23, 2024

Strategic investments, primarily in innovative technologies and electric mobility, coupled with portfolio reviews and divestitures will drive M&A activity in 2024.

Michelle Ritchie

Michelle Ritchie

Global Industrial Manufacturing & Automotive Deals Leader, Partner, PwC United States

Nicola Anzivino

Nicola Anzivino

Global Industrial Manufacturing & Automotive Deals Leader, Partner, PwC Italy

Deal activity in the industrial manufacturing and automotive (IM&A) sectors is expected to increase during 2024, as market challenges such as inflation and higher interest rates are likely to ease along with greater flexibility in dealmaking.

Rapid technological advancements, such as artificial intelligence (AI), automation and digital transformation are strategic areas of focus for M&A opportunities. Companies are looking to acquire new technologies or digital capabilities to stay competitive or expand their market presence. IM&A companies with strong R&D teams or innovative products will be a focus for dealmakers as their organisations attempt to accelerate their own efforts, shorten time to market and stay ahead of competitors. Companies may engage in M&A to respond to disruptive forces or to transform and reposition themselves as disruptors through acquisitions of start-ups or other players.

A disciplined approach by dealmakers in the IM&A sectors will balance the opportunities and challenges of the macroeconomic environment. While uncertainty remains, there is rising optimism in the United States due to the potential lowering of interest rates during 2024, which would create more favourable economic conditions. In European and other markets, we anticipate that uncertainty surrounding market growth and interest rate expectations may make it difficult for buyers to get comfortable with near-term forecasts, and the valuation gap between buyers and sellers may persist. Additionally, regulatory approvals and antitrust considerations will affect deal timelines and the feasibility of certain transactions, especially in more heavily regulated subsectors, such as aerospace and defence.

“IM&A deal activity will likely increase in 2024 from a stable level as dealmakers weigh innovation and strategic goals against current market conditions and global uncertainties. This, coupled with divestitures from portfolio reviews, will drive transformation and growth.”

Michelle Ritchie,Global Industrial Manufacturing and Automotive Deals Co-Leader, Partner, PwC US

CEOs continue to review their portfolios and consider carve-outs and divestitures to focus on core strategic growth areas, profitability and capital allocation. Companies will look to divest non-core or underperforming assets to reallocate resources to more profitable or growth areas. In addition to divestitures from traditional industrial and auto companies, we expect to see consolidation of small to medium-size companies that have been negatively affected by macro- and microeconomic conditions in the automotive and construction sectors. This will create opportunities for acquisitive companies to align M&A opportunities with their own strategic objectives, leading to value creation and sustained outcomes.

Private equity (PE) will likely have a role to play in an increase of M&A activity given the substantial dry powder ready to be deployed once financing difficulties ease. We see a trend towards alternative financing and structuring approaches, including earnouts, partnerships and joint ventures, to address financing and valuation concerns. Alongside technological advancements, industry consolidation—combined with a focus on strategic growth and diversification—is expected to drive increased activity.

“Strategic M&A will be key in 2024, focused on companies with strong R&D, innovative products and industrial value-added services. I expect new M&A opportunities to be created in dynamic sectors experiencing rapid technological advancements such as aerospace and defence, electric vehicles and business services.”

Nicola Anzivino,Global Industrial Manufacturing and Automotive Deals Co-Leader, Partner, PwC Italy

From a sector perspective, M&A activity within aerospace and defence (A&D) will be driven by growth in the tourism market and growing defence budgets in relation to global conflicts. Electric vehicle transactions will continue to affect the automotive market, while increasing investments in infrastructure will lead the engineering and construction (E&C) sector. The industrial manufacturing sector is expected to remain stable with a continuation of small to medium-size transactions driven by strategic focus. M&A activity in the business services sector is expected to grow in specific subsectors driven by new digital capabilities that can transform business models.

M&A hot spots

We expect the following to be hot spots for M&A activity over the next six to 12 months:

  • Innovative technologies: Companies are focusing on strategic investments in new and innovative technologies to gain a sustainable competitive advantage. As a result, tech-driven transactions will have a positive impact across the IM&A sectors in the near to medium term. We expect this influence to be the strongest in subsectors related to batteries and charging technologies for electric vehicles, cloud-related technologies and robotics.

  • Artificial intelligence (AI): In addition to other innovative technologies, AI is expected to become an integral part of the growth story of deal activity in industrial products as companies seek tech-enabled AI targets that offer new revenue streams for businesses. Combined with data proliferation, AI is enabling hyper-automation and process improvements. PwC’s 27th Global Annual CEO Survey found that 64% of IM&A CEOs expect generative AI to significantly change the way their companies create, deliver and capture value in the next three years. IM&A companies seeking to actively invest in AI-driven product innovation will need to decide whether to buy or build these capabilities.

  • Supply chain resilience: Uncertainty is becoming normal, driven by the geopolitical environment and macroeconomic challenges from inflation, high interest rates and margin pressure. Deal activity may be driven by shifts in supply chains and near-shoring as companies assess their global supply chain footprints and evaluate the potential risks. M&A and alternatives such as joint ventures, strategic alliances and private funding are viable options as companies consider the strength and viability of their operational suppliers.

  • Sustainability: Dealmakers are looking to M&A to help them accomplish sustainability and broader environmental, social and governance (ESG) initiatives, which continue to be a focus driven by tightening regulations and the demands from business, consumers and investors. Companies within the IM&A industry are looking for target companies with products and capabilities to help them achieve their sustainability goals as a pathway to net zero. We expect companies focused on decarbonisation, renewable energy and the electrification of industrial equipment to be attractive targets.

M&A volumes and values in 2023

Industrial manufacturing and automotive deal volumes and values, 2019-2023

Bar chart showing M&A volumes and values for the industrial manufacturing and automotive sectors. Deal volumes and values declined in 2023 across all sectors and regions as macroeconomic and geopolitical factors created uncertainty and deal financing was scarce.

Sources: LSEG and PwC analysis

Deal volumes and values in IM&A decreased between 2022 and 2023 by 3% and 24%, respectively, as a result of the challenging macroeconomic and geopolitical environment. Mid-market deal activity remained relatively stable, but larger deals dried up as financing became harder to find.

Performance varied across sectors. M&A activity in aerospace and defence increased 13% in 2023 compared to the prior year, while automotive, business services and manufacturing held relatively steady and engineering and construction declined 11%. Deal values decreased across all sectors except aerospace and defence.

M&A trends also varied by region, with deal volumes increasing 4% in Asia Pacific and 1% in the Americas. Deal volumes in Europe, the Middle East, and Africa (EMEA) declined 11%, with France, Ireland and the United Kingdom declining the most in percentage terms. Deal values declined across all regions and in almost every country.

Global sector trends for 2024

  • Deal activity in aerospace and defence exhibited two contrasting trends in 2023: defence M&A remained stable, while commercial aerospace experienced turbulence. We expect to see an increase in M&A activity in both subsectors starting in the middle of 2024.

  • The commercial aerospace sector is expected to continue growing faster than global economic growth into 2024. However, interest rates, continued supply chain and production issues, increased competition for talent, and regulatory impacts could slow this growth. Companies are attempting to overcome these challenges through acquisitions and strategic portfolio reviews. Some companies are looking at vertical consolidation to overcome supply chain constraints and production capacity issues while also expanding their focus on the provenance of parts to address growing concerns about counterfeits. Other companies are considering addressing talent issues by acquiring skilled workforces through acquisitions; however, these companies will likely face competition from technology companies looking to hire software engineers.

  • Forecasts for growth in defence budgets in the medium term may lead to additional dealmaking. For example, we may see increased investment in defence spending in Europe and the Middle East, with a particular focus on sovereign investments. We expect that regulatory and national security concerns will continue to limit the potential for large-scale strategic consolidation.

  • We expect continuing priorities such as hypersonics, robotics and space to attract investor interest and lead to further transaction activity. Once current financing difficulties ease, we anticipate that private equity will likely have a sizeable role to play in any uptick in M&A activity. Financial sponsors may be particularly attracted to a string of smaller add-on transactions to portfolio businesses aligned with a government budget focus. With larger deals likely to attract greater regulatory scrutiny, we expect the trend towards small and midsize acquisitions to continue in 2024. As with the anticipated trend in the commercial aerospace sector, defence companies are expected to enter into strategic and operational partnerships to address capacity concerns.

  • In 2024, automotive business leaders will continue to pursue M&A strategies focused on digital, software and electrification innovation. Automotive companies continue to adapt to an electric future on numerous fronts, and we expect to see further M&A activity in electric vehicles (EVs) and connected automated shared electric (CASE) assets. Along the EV value chain, there are growing interdependencies which will lead to acquisitions, joint ventures and strategic alliances. Examples include OEMs investing directly in mining companies or negotiating offtake agreements to ensure security of supply for critical minerals or investing in on-site energy generation capabilities.

  • The pace of adoption of EVs may differ from country to country, with some governments passing legislation—such as setting quotas on EV sales under zero-emission-vehicle (ZEV) mandates—to help accelerate the transition. Some countries may stop short of direct mandates to allow the necessary EV infrastructure to be built, using other measures such as tax incentives to encourage EV adoption. With recent developments in the Asian auto market, we expect overseas automotive companies to pursue M&A and partnerships with Asian EV start-ups as they compete for market share.

  • Market conditions continue to be top of mind, and dealmakers will likely remain constrained in terms of capital availability during 2024. The macroeconomic, geopolitical and other factors which muted automotive dealmaking in 2023, while expected to continue this year, appear to be stabilising. High inflation, interest rates, supply chain disruption and labour constraints (heightened due to the recent US auto worker strikes) all add to the uncertainty and perceived risks of dealmaking. As inflation is brought under control, price reductions in certain core commodities and logistics costs will help with profitability. With persistent economic uncertainty decreasing the margin for error, we expect dealmakers will continue to look for lower-risk and more strategic actions to drive value creation.

  • Suppliers dealing with squeezed margins and higher inventory levels may face working capital constraints and liquidity issues which in turn may create opportunities for dealmakers through M&A, strategic alliances or capital investments. The goal of many OEM suppliers will be to successfully manage through any liquidity crunch while remaining able to benefit from strategic investments in new technologies.

  • Given the challenges of obtaining financing, more capital-constrained companies may give stronger consideration to divesting non-core parts of their portfolios to free up capital needed to fund investment opportunities. As companies look to the future, a continued strategic focus on core, cash-generating operations will likely drive increased deal activity starting in 2024.

  • M&A opportunities in the business services sector are expected to remain strong in 2024 with technology disruption being a strong impetus, despite continuing uncertainties in the global macroeconomic and geopolitical environment.

  • We expect a continued shift from traditional to tech-enabled services to create favourable conditions for M&A, especially for global players. Generative AI may affect legal and professional services, among others, for example.

  • Dealmakers will be particularly interested in subsectors within business services that offer the digital capabilities to transform business models. Sectors such as managed IT, commercial and residential services, and testing and inspections services present attractive opportunities for a roll-up strategy, likely spurring robust M&A activity in 2024. Smaller bolt-on deals are expected, although private equity firms may continue to exercise caution due to high interest rates and challenges in raising financing.

  • Outsourced services will continue to attract investment, as business leaders prioritise profitability and cost reduction. However, supply chain disruptions may discourage some companies from fully outsourcing as they seek to build resilience into their business models. Inflationary pressures have affected the profitability of outsourced service providers to different degrees based on their ability to pass on higher costs to customers. This in turn has affected deal valuations, with companies that can maintain margins continuing to achieve high multiples.

  • M&A activity is expected to increase in the professional services subsector. Consolidation will enable small accounting and professional advisory firms to gain scale, enhance brand value and make digital investments. This could lead to a divergence in strategies between highly specialised firms and those offering a range of services, each with a different geographical reach.

  • The choppy trend in engineering and construction (E&C) deal activity in 2023 is expected to continue through the middle of 2024, with many corporate and family-owned businesses remaining cautious about the macroeconomic environment and geopolitical unrest. However, as inflationary pressures have eased and interest rates have stabilised, our outlook for 2024 is cautiously optimistic. This view is supported by the number of corporates that are searching to deploy their capital towards areas of value creation and the substantial dry powder held by private equity to invest. We believe 2024 may provide an opportunity for some players within the E&C sector to capitalise on lower valuations as more risk-averse players remain on the sidelines.

  • The residential construction landscape may be poised for growth as interest rates have stabilised and may start to decrease during 2024. However, in countries where residential mortgages are on relatively short-term fixed rates, a higher-for-longer interest rate environment may introduce a new wave of stress when these mortgages come up for renewal.

  • The commercial construction sector faces a more challenging environment, marked by stagnant projects, margin compression, upcoming refinancing milestones and the looming possibility of debt defaults. The continued preference of workers for remote or hybrid work has reduced demand for office space, although some new office buildings are having an easier time finding tenants than older ones which need retrofitting. Construction companies heavily exposed to the warehousing and manufacturing subsector may find downward pressure on valuations due to market contractions from recent highs.  These uncertainties underscore the importance of making well-informed choices in capital allocation for E&C companies.

  • E&C companies continue to innovate, which is highlighted by the early adoption of AI and sustainability standards for competitive advantages in initial design automation and product development. Firms specialising in engineering services, intelligent transportation, and power and telecommunications continue to be attractive assets in this environment. Investors are also likely to seek companies that demonstrate a commitment to sustainable practices, specifically those that focus on decarbonisation or disposal of carbon-intensive elements in the construction process.

  • Dealmaking activity in the industrial manufacturing sector is expected to remain broadly stable at the beginning of 2024 before ramping up activity levels mid-year, especially among small and medium-size companies, despite uncertainties in the global macroeconomic and geopolitical environment. Consistent with 2023, inflation, interest rates and high valuations will drive industrial players to target smaller acquisitions to fill key strategic capabilities more often than larger, more transformative deals.

  • Companies continue to engage in portfolio reviews to identify and divest non-core assets. This frees up capital for investment in areas that better align with their strategic priorities or that will help them reinvent their business models as they look to the future. Buyers for these assets will likely be corporates and private equity portfolio companies with strong balance sheets seeking to expand their capabilities as well as private equity firms considering a roll-up strategy.

  • To remain competitive, industrial manufacturing companies are seeking digital assets to increase manufacturing efficiency and reinvent business processes. Artificial intelligence, machine learning, 3D printing, robotics and predictive maintenance are areas expected to expand efficiency and nimbleness. Given the ongoing risks and uncertainties in the geopolitical environment, there will also be a continued focus on supply chain diversification and near-shoring—two key areas that are likely to drive M&A activity in 2024.

  • As end markets, customers and investors increasingly focus on sustainability considerations, industrial businesses are looking for products and capabilities to help them achieve their goals. We expect attractive targets to include companies focused on decarbonisation, renewable energy and the electrification of industrial equipment.

We have based our commentary on M&A trends on data provided by industry-recognised sources. Specifically, overall deal values and volumes referenced in this publication are based on officially announced transactions, excluding rumoured and withdrawn transactions, as provided by the London Stock Exchange Group (LSEG) as of 31 December 2023 and as accessed on 3 January 2024. This has been supplemented by additional information from S&P Capital IQ and our independent research. Certain adjustments have been made to the source information to align with PwC’s industry mapping.

Michelle Ritchie is PwC’s global industrial manufacturing & automotive deals co-leader. She is a partner with PwC US. Nicola Anzivino is PwC’s global industrial manufacturing & automotive deals co-leader. He is a partner with PwC Italy. Nathan Whitley is a director with PwC US.

The authors would like to thank the following colleagues for their contributions: Mark Anderson, David Bard, Cesare Battaglia, Danny Bitar, James Brewerton, Mike Brooks, Gabriele Capomasi, Wanfeng Chen, Sandie Costa, Matthew Davy, Coolin Desai, Cara Haffey, Motoyuki Hattori, Sven Heinemann, Martin Holzapfel, Michael Huber, Darren Jukes, Jin Jun, Michael Kamel, Nobutaka Kanazawa, Darrell Kennedy, Gentaro Kobayashi, Jorg Krings, Bob Long, Mona Hamzah, Martin Nicklis, Eric Parrish, Ty Pearson, Alexander Pirrie, Joe Rafuse, Colin Ryan, Harald Scheikl, Martin Schwarzer, Sarah Senyo, Daniel Sipple-Asher, Alessandro Spaghi, Daniel Steiner, Chris Temple and Nicolas Veillepeau.

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