Due to high valuations, uncertainty in trade regulations and slowing GDP growth around the world, 2019 was a year in which M&A activity declined and caused certain deal makers to reevaluate their inorganic growth strategies. Following this trend, the first and fourth quarter deal volumes were reflective of some of the lowest quarterly activity since Q1 2014 for the industrial manufacturing sector which led to a significant decline in deal value from 2018 to 2019 of 19%.
However, it’s not all doom and gloom. The aggregate value of the top ten deals in 2019 for the sector has remained stable at $36.3 billion compared to $38.5 billion in 2018. Further, 2019 exceeded 2017 levels by more than $9.0 billion in deal value. This demonstrates that certain deal makers are still acting boldly in driving their strategic initiatives forward. For 2020, although volumes will be flat to marginally lower than 2019 levels, we believe that megadeals will continue to become a larger share of deal value.
Here’s a breakdown of year-end M&A activity for the industrial manufacturing industry:
Strategic investors led in 2019 by contributing 55% and 60% in the total deal value and volume, respectively. Similarly, during the fourth quarter, strategic investors stayed ahead of financial investors by contributing 53% and 60% to the deal value and volume, respectively. However, strategic investors witnessed the second lowest deal value and volume in Q4 2019 since Q1 2017.
We have to remember the M&A environment is cyclical and has historically followed economic downturns, as capital available for deals typically decreases. However, we believe an economic downturn will be unlike the last historic downturn. We expect some deal makers will continue to practice caution while others will identify opportunities and be swift to move to capture value through M&A in 2020.
View the full year-end 2019 Industrial Manufacturing deals insights here.