At a glance:
- Total deal value was $26.2 billion in H1 2020, a 46% decrease compared to H1 2019.
- There were 958 deals in H1 2020, a 21% decrease compared to 1,206 deals in H1 2019.
- Deal value and deal volume declined 63% and 36%, respectively, in Q2 2020 when compared to Q1 2020.
- Deal value in Q2 2020 was the lowest in the last eight quarters due to the impacts of the COVID-19 pandemic.
- Asia and Oceania dominated H1 2020 deal value and volume while North America exhibited the second highest deal value, driven by the US with five deals among the top ten.
All sub-sectors across the industrial manufacturing sector experienced a decline in deal volume. Industrial machinery exhibited the highest deal value and volume during the first half of the year, with four of the top ten deals coming from this sub-sector. Miscellaneous IM and other sub-sector saw a 45% increase in deal value during the first half of 2020 compared to the first half of 2019.
We expect several factors will drive a resurgence in M&A activity across the industrial manufacturing sector during the second half of the year:
- Shifting industry paths: The need for divestment of non-core assets, consolidation and bankruptcy will drive an uptick in strategic deployment of capital by those corporate investors with strong balance sheets and create opportunistic investment opportunities for financial buyers.
- Supply chain risk management and efficiency: We expect to see a renewed focus on product sourcing and supply chain efficiency and supply chains will likely become more localized, which may provide increased opportunities for M&A.
- Future of capital: The decline and continued uncertainty in end market demand for industrial manufacturing products coupled with concerns over the economic impact of a resurgence of the virus during the second half of the year will continue to impact valuations resulting in increased opportunities to use M&A as a strategic tool to create shareholder value.
- Technological innovation: We expect to see companies invest in additive manufacturing, digital factory and digital supply chain solutions, which will result in increased machine-based manufacturing that will help increase manufacturing efficiency and reduce the risk of operational disruptions.
Companies are figuring out how to manage their way out of this pandemic and emerge stronger. They will continue to focus on value preservation through cash flow and cost management measures as well as minimizing supply chain risk.