Industrial manufacturing: US Deals 2023 midyear outlook

Manufacturing M&A anticipated to stabilize

Deal volume and value stabilized in the first half of 2023 following a handful of large deals at the end of 2022. Inflation, high interest rates and other macroeconomic factors are pressuring dealmakers to optimize and review portfolios and evaluate strategic gaps. This focuses deal activity on key strategic areas to build capabilities, rather than building scale.  We anticipate deal activity in the second half of 2023 to be stable and continue to be largely driven by strategic gaps or divestitures of non-core assets to provide investment funding. Investment in digital (including automation and artificial intelligence) and reshoring are consistent themes driving M&A strategy. 

Improved macroeconomic factors could stimulate economic growth and bolster market confidence and create a conducive environment for M&A in the near to medium term. Some companies — both corporate and private equity alike — may seize this opportunity to pursue transformative deals, consolidate market positions and capitalize on synergies and economies of scale. In the meantime, divestiture of non-core assets from portfolio optimization, surveying of supply chain and increasing pressure on companies to digitize operations remain fundamental themes expected to drive M&A in the near term.

Explore national deals trends

Transact to Transform

Companies face markets being reshaped by technology and disrupted by geopolitical unrest, a global pandemic and economic shocks. As a result, CEOs are turning to transformative acquisitions to reposition and reinvent their businesses for long-term success. Companies are also beginning to crack the code on how to make big, transformative deals successful: leveraging experience, early and sustained investment in integration, and a commitment to creating and implementing new long-term operating models.

Learn more about leading practices and transformational mindsets in PwC’s new M&A integration report.

Key deal drivers

Resilience and innovation for growth and sustainability

Industrial manufacturing companies continue to seek innovation to build efficiencies and resilience into their supply chain through digital investment. Companies are investing in automation and artificial intelligence to mitigate supply chain risk as well as to expand capabilities. This includes areas such as inventory management improvement, streamlining testing/quality reviews and enhancing preventative and predictive maintenance.

Supply-and-demand dynamics remain challenging as a result of the ongoing Russia Ukraine war and heightened geopolitical tension. This can create opportunities for companies who strategically engage in M&A to diversify their geographic footprint, mitigate risks and navigate changing trade dynamics. These supply chain challenges drive M&A to mitigate this risk through acquisition of suppliers and onshore or nearshore internal capabilities.

Companies may also look to build redundant manufacturing capabilities in multiple regions or countries to cope with a new business environment with a fragmented global supply chain. For industrial manufacturing, M&A can be a preferred approach to achieve this strategic goal as greenfield investment takes a much longer time period to carry out. 

Necessity for business reinvention

For companies to remain competitive in today’s manufacturing transformation, the sector’s leaders and executives will need to continue to review their company portfolio, including divesting non-core assets to accommodate investments in technology and other capabilities.

The long-standing “make versus buy” theory will continue to be part of strategic decisions, with deals being a key lever. Does business reinvention come through all-in investment on organically developed business models and technology (i.e., make) or through dealmaking to bring capacity, human talent and capabilities to navigate the continued challenges (i.e., buy)?

Many companies are hesitant to divest a portion of their business. Some executives have the tendency to use up valuable time and company resources to try to fix a strategic business issue instead of moving on through divestiture and reinvesting the capital elsewhere. PwC’s recent divestiture study found that timely execution of divestiture decisions can help increase the chances of value creation. 

“Industrial manufacturing deal activity continues at a steady pace in 2023 as companies seek M&A opportunities for capabilities and strategic gaps, and portfolio reviews drive non-core divestitures.”

— Michelle Ritchie, Industrial Products Deals Leader
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