A handful of industrial manufacturing transformational deals (transactions exceeding $1 billion in deal value) in the fourth quarter of 2022 pushed the year to a strong finish — despite macroeconomic headwinds — and demonstrating growth over the previous quarter.
Overall, industrial manufacturing M&A deals declined in 2022 from historic levels in 2021. However, the 2022 level of deal activity is nevertheless above historical trends, specifically higher than 2019. M&A volume in the second half of 2022 appeared to illustrate a shift to investments in North America due to economic and geopolitical uncertainty and the desire for nearshoring of certain operations. This may continue to influence the M&A landscape into 2023, despite the strengthening of the US dollar.
Strategic focus areas and investment along with portfolio review and resulting divestitures are expected to support stable deal activity going into 2023.
Uncertainty from global economic and market influences impacted industrial manufacturing deal volume in 2022. These influences — which include rising cost of capital, inflation, volatile raw material prices and availability, and increased freight costs — will likely continue to challenge M&A in the near term.
Given these pressures, M&A activity for industrial manufacturing companies will likely be driven by mid-market corporations and private equity portfolio companies seeking strategic expansion of platforms and programs. Additionally, the portfolio review and related divestitures of non-core assets is likely to fuel stable deal activity as we head into 2023.
Divestitures come with significant investments in costs and time and operational complexities, including entanglements and tax implications. As a result, companies across all industries are typically more reluctant to embrace them than acquisitions. However, divestitures are a critical part of strategic repositioning and can help drive higher shareholder returns.
Clearly, attitudes matter. PwC’s upcoming study on divestitures finds that the more positive a company's attitude towards divestitures, the more likely the company is to consider and carry out divestitures. In the case of industrial products companies, the positive attitude is driving benefits through strong returns — with about two-thirds of sector respondents seeing a 5+% return on their divestitures.
“Industrial manufacturing deal activity is expected to be strategically focused and remain at a stable level in 2023, despite economic headwinds as companies seek M&A opportunities and portfolio reviews drive non-core divestitures.”
Global Industrial Manufacturing and Automotive Deals Leader, PwC US