Industrial Manufacturing Deal Activity Falls to Lowest Level in over Four Years

25 April, 2019

Paul Elie
Industrial Products Deals Leader, PwC US

Deal activity in the first quarter for industrial manufacturing companies fell to its lowest level in more than four years. The pullback is attributed to global economic uncertainty which has companies reevaluating the strategic fit of acquisitions. This is due in large part to trade wars and growth slowdowns in the U.S., Europe and China. Despite this uncertainty, we still expect deal makers to evaluate M&A opportunities to accelerate growth and drive their innovation strategy. Here are the topline findings from our Q1 Global Industrial Manufacturing Deals Insights:

  • Deal value: Disclosed deal value was $18.4 billion, a decrease of 15% compared to the same timeframe last year and a 30% decrease from Q4 2018.
  • Deal volume: There were 499 deals, a 26% and 21% drop compared to Q1 2018 and Q4 2018 respectively.
  • Average deal size: Up slightly from Q4, average deal size reached $107.2 million; a 36% increase from Q1 2018.

The largest deal – Berry Global International’s acquisition of RPC Group for $6.2 billion – is likely to generate annual cost synergies of $150 million and will help Berry Global leverage combined know-how in material science, product development, and manufacturing technologies. In total, the three largest deals accounted for more than half of all deal value. Given the prominence of megadeals in a declining global economic environment, the megadeals segment of the M&A market appears to be decoupling from the broader global economy.

For the first time in more than three years, we saw the rubber and plastic products category lead the way in deal value (over industrial machinery, fabricated metal products, electronic and electrical equipment, and miscellaneous/other), accounting for more than half of the dollars transacted. Industrial machinery continued its pace as the sub-sector with the most deals taking place, a trend for over three years now.

The UK and Eurozone was the most active acquirer region with deals valued at $11.5 billion, their highest since 2016. They led with 62% of deal value with North America following in a distant second contributing to 19% of deals. In terms of the number of deals, Asia and Oceania accounted for 39%, followed by 23% from the UK and Eurozone. The trend carried over to target region as well, where deal value was led by the UK and Eurozone (54%) while Asia and Oceania led the deal volume (39%).

Despite the slowdown, one quarter doesn’t make a trend. Deal makers are revising their growth ambitions so the current pace will likely continue through the second quarter. Beyond that we’re cautiously optimistic about the M&A outlook. Sound fundamentals such as record levels of dry powder from PE, healthy corporate balance sheets and an appetite for digital solutions support an opportunistic M&A environment. Deal makers will still look to M&A to accelerate growth and drive their innovation strategy while keeping true to the fundamentals they use to evaluate the economics of a transaction.