Global M&A trends in industrials and services

A&D deal activity shows continued momentum as we head into the second half of 2025, with global players navigating heightened geopolitical tensions, regional differences in deal dynamics and a growing push for strategic clarity. A defining theme is the focus on core competencies.

Acquisition strategies are increasingly focused on mission-critical areas such as AI-enabled defence systems, drone technologies and advanced software platforms. This strategic clarity is driving a wave of carve-outs and bolt-on acquisitions. To meet rising defence demand and secure key contracts, companies are reassessing their core capabilities and scaling production and investment in areas where they hold the strongest competitive advantages. At the same time, we are seeing a heightened emphasis on strengthening critical supply chains through targeted acquisitions of specialised suppliers. 

Global firms across the sector are actively realigning their portfolios by divesting non-core assets to streamline operations and reinvest in high-growth, tech-enabled segments. One of the largest announced M&A deals of 2025 to date was Boeing’s $10.5bn sale of portions of its digital aviation solutions business to Thoma Bravo. This deal also illustrated the appetite among private capital players for defence-tech assets. Indeed, private equity (PE) players are showing increasing interest in areas such as dual-use technologies, specialised suppliers and mid-market carve-outs. 

Technological innovation remains central to investment strategies within the A&D sector. Unmanned systems, AI and cyber defence remain top priorities for investment, with strategic partnerships and acquisitions gaining momentum, particularly in space and cybersecurity. We expect these areas will continue to be key drivers of M&A activity going forward. 

While rising defence budgets across the US, Europe and Asia are fuelling deal interest, regulatory constraints and national security considerations are influencing how transactions are structured, particularly in markets such as France, Italy and Japan. In Japan, for example, limited availability of targets and regulatory constraints are prompting buyers to favour joint ventures and minority investments as full acquisitions become increasingly difficult to execute.

In 2025, the automotive sector is undergoing a significant structural realignment as a result of persistent overcapacity and mounting cost pressures. OEMs and suppliers are divesting non-core assets to reallocate capital and sharpen focus on core priorities—most notably, electrification and digital transformation. As long-term cost structures trend higher, operational efficiency and the adoption of digital technologies have moved to the forefront of strategic agendas, setting the stage for increased M&A activity in the next 12 months. Regionally, European OEMs are addressing surplus capacity, while Chinese automakers are streamlining brand portfolios to enhance operational efficiency. Japanese OEMs are similarly consolidating brand portfolios amid growing pressure from activist investors, further fuelling divestiture activity. 

The uncertain policy environment has slowed or paused some transactions while simultaneously redirecting investor interest towards domestic or supply chain–resilient assets, particularly in industrial services. In parallel, automotive supply chain companies, especially from China and Japan, are responding by establishing localised production bases through acquisitions and joint ventures. Notable activity is emerging in Southeast Asia (Thailand, Malaysia and Vietnam) and Europe (Hungary, Turkey and Spain) as firms seek to navigate geopolitical and regulatory complexities by partnering with local players. 

As noted above, joint ventures are becoming increasingly common in areas such as batteries, software and autonomous-vehicle technologies. These reflect a broader industry trend towards collaboration to manage risk and accelerate innovation at scale. At the same time, some automotive players are expanding into adjacent sectors, such as mining and defence, to secure access to critical raw materials. A shared global strategy has emerged around upstream investments in battery raw materials—such as lithium and nickel—despite execution risks and limited mining sector experience. An example is General Motors’ $625m joint venture with Lithium Americas which closed in late 2024.

Another emerging trend is the growing convergence between the automotive and defence sectors, particularly in Europe and China. Automotive suppliers are increasingly targeting smaller, certified players as strategic entry points into the defence supply chain. This shift reflects both a response to rising national security budgets and a recognition of the operational synergies between automotive manufacturing capabilities and defence production requirements.

Despite the drop in the first months of 2025, deal activity in business services is expected to remain robust through the rest of the year, supported by investor interest in sectors with recurring, stable cash flows and scalable operating models. PE firms continue to target areas such as accounting, legal, marketing and engineering consulting—focusing on strategic platform building through the consolidation of smaller, niche firms. The proposed acquisition by UK accountancy firm MHA of Baker Tilly South East Europe announced in May 2025 illustrates this approach, allowing investors to gain market share and operational leverage in fragmented markets.

Legal services, in particular, have drawn increased investor interest following recent regulatory changes. Notably, in the US, reforms such as Arizona’s decision to permit non-lawyer ownership of law practices have opened the door for new investment. These changes are catalysing a broader evolution of the legal services landscape, with investors increasingly prioritising automation, integration and tech-enabled delivery models.

Mid-market sectors continue to attract considerable interest from investors, particularly in blue-collar service areas such as HVAC, utilities and electrical testing. Investors tend to favour these sectors for their stable, recurring demand and lower sensitivity to economic cycles. Investors often focus on under-the-radar firms in these segments to avoid competitive auctions. Similarly, sectors deemed critical to business continuity such as IT managed services, cybersecurity, compliance and GovTech remain attractive due to their essential functions and resilience during economic downturns.

Recruitment and staffing firms are also attracting renewed investor interest as they increasingly adopt AI to improve efficiency and reduce costs. These tech-driven advancements are reshaping the investment thesis—from viewing these companies not as a restructuring challenge but instead as a scalable, margin-enhancing opportunity. In contrast, automation has yet to meaningfully affect deal activity in traditional professional services, where complexity and regulatory constraints slow adoption. For now, staffing stands out as a tech-enabled bright spot in the broader business services M&A landscape. 

One challenge continues to overhang the PE M&A strategy in professional services, namely the apparent scarcity of clear and credible exit pathways. To date, there have been few successful exits of legal or accounting firms, raising questions about long-term returns and the viability of current investment theses. PE firms are focused on consolidating fragmented markets, improving operational efficiency, and leveraging technology to improve margins. However, the absence of proven exit models introduces a layer of uncertainty regarding the future of these investments. As acquisition activity continues, investors must now balance aggressive growth strategies with the pragmatic need to ultimately exit their investments and realise value—whether through IPOs, secondary buyouts or strategic sales. 

Deal activity in the E&C sector is expected to remain stable throughout 2025, demonstrating continued resilience despite persistent broader macroeconomic uncertainty. Ongoing challenges such as fluctuating interest rates, shifting tariff policies and acute labour shortages are affecting project timelines and cost control. In Japan, demographic pressures, such as an ageing population, are intensifying skill shortages and succession challenges, prompting strategic acquisitions to secure talent and divestitures where successors cannot be found. These shortages have been exacerbated by immigration policy uncertainty, particularly in the US and parts of Europe, further straining workforce availability and intensifying competition for skilled labour.

Nevertheless, demand remains robust across key infrastructure segments, particularly in residential housing, energy resilience, and healthcare facilities. Residential construction, particularly of single-family homes, remains a significant growth driver, buoyed by sustained demand and persistent housing shortages. In contrast, multifamily residential construction has been somewhat constrained by elevated financing costs. At the same time, prefabrication and modular construction methods are gaining traction as companies seek cost-effective, labour-efficient solutions to meet project demands. An example of this strategic focus is James Hardie's $8.75bn proposed acquisition of AZEK, which will position the combined entity as a leading building products growth platform. 

Capital-intensive segments such as data centres and distributed energy systems continue to attract considerable investor interest, driven by increasing demands for power resilience and grid reliability. The significant capital expenditure required for these investments has narrowed the buyer pool to well-capitalised strategic players with deep sector expertise. Within this context, energy resilience is emerging as a major M&A driver—spurring activity in high-potential areas such as nuclear energy, microgrids and companies servicing distributed energy systems.

Strategic and financial buyers are prioritising targets with robust connections to these critical infrastructure markets—particularly platform acquisitions that support scalable, incremental growth. Fragmented sectors such as HVAC, electrical contracting, roofing and plumbing services are attractive, especially those offering opportunities to consolidate market share, optimise operational efficiency, and expand geographic reach. Deal activity in HVAC, electrical installations and specialised civil engineering (such as drilling and rock cutting) is also on the rise globally as firms seek to address intensifying labour shortages and succession challenges. We expect this momentum to continue through the second half of 2025.

Upstream engineering and design services providers are maintaining a steady pace of deal flow, with particular strength in markets associated with nuclear power, sustainable infrastructure and, increasingly, AI-enabled construction solutions. The demand in these specialised areas underscores their importance as key strategic segments, attracting sustained investor interest and supporting a consistent pipeline of M&A activity.

Tariff disruptions continue to shape investment decisions in industrial manufacturing, with many investors seeking to minimise exposure to US—China trade dynamics. Chinese companies, for example, have redirected investments towards Southeast Asia markets—particularly Thailand, Malaysia and Vietnam—as part of a broader move towards nearshoring and regionalised production strategies.

Technology-led innovation continues to be a key driver of M&A activity worldwide, particularly in automation, robotics and digital transformation. Investments in AI and advanced manufacturing technologies are accelerating as companies seek to enhance productivity and global competitiveness. In China, government-supported initiatives have further catalysed acquisitions and strategic investments in critical areas such as semiconductors, industrial robotics and automation equipment, underscoring the country’s push for industrial modernisation.

The infrastructure and defence sectors continue to represent high-growth areas fuelling M&A activity, particularly across Europe and China. National efforts to modernise infrastructure, ensure energy security, and strengthen defence readiness have spurred strategic acquisitions, especially in dual-use technologies and mission-critical manufacturing. In Europe, rising defence budgets are prompting strategic corporate buyers and PE to pursue opportunities where technological capabilities can be applied across industrial and defence sectors.

M&A remains a critical strategic lever for industrial manufacturing companies seeking transformation and enhanced competitiveness. Notable transactions, such as Rieter’s proposed acquisition of Barmag from OC Oerlikon for CHF713m ($860m), illustrate the sector’s continued focus on strategic scale and capability-building.

While the broader deal environment remains tempered by valuation mismatches, protectionist trade policy and cost pressures, targeted activity continues in services, infrastructure and manufactured components. Strategic divestitures are unlocking opportunities for PE. Due diligence has intensified, with greater focus on tariff exposure and supply chain resilience. Regional nuances persist, with Asia Pacific offering strong growth potential in less mature, founder-led markets. Increased clarity on interest rates and tariff policy in the second half of 2025 could provide a much-needed boost to investor confidence and accelerate global deal activity.