Industrial manufacturing M&A was strong in the first half of 2022 but slower than in 2021, which was driven by pent-up demand. Average deal value decreased over 30% in the first half of 2022 from the second half of 2021. Activity in the first half of 2022 was focused less on transformational megadeals (transactions exceeding $1 billion in deal value) and more on smaller, targeted acquisitions and divestitures. This was driven by buyers building out platforms and filling in strategic market gaps, sellers divesting non-core divisions or assets and broad concerns of US regulatory scrutiny.
Revenue growth, a resilient supply chain and margin expansion from digital automation are focusing business transformation. In many cases, companies are leveraging the speed to help achieve such transformations that M&A can provide. Companies, however, face ongoing market headwinds of economic and geopolitical uncertainty, including record-high inflation, which will likely continue to influence the M&A landscape into the second half of 2022.
Industrial manufacturing M&A activity was stable in the first half of 2022 as deals progressed toward completion, despite uncertainty from global economic and market influences. These influences — such as inflation, volatile raw material prices and availability and freight costs — will likely challenge M&A through the rest of 2022 and into 2023. Given the potential shift to onshoring for manufacturing, localization rather than cross-border transactions will likely be a primary focus area for M&A in the near-term.
While some expect the global economy is headed for a near-term slowdown, underlying economic fundamentals remain strong. Private equity firms with dry powder and corporations with significant cash balances are expected to drive significant M&A activity. This, coupled with a large number of carve-out divestitures being contemplated, provide supply for potential transactions.
“M&A activity in industrial manufacturing is expected to remain stable in the rest of 2022 despite global headwinds as companies deploy capital to focus on supply chain resilience and business transformation, while divesting non-core assets after portfolio reviews.”
Industrial Products Deals Leader, PwC US