Global industrial manufacturing deals insights: Year-end 2019

Highlights of deal activity

Industrial manufacturing deals outlook

While disruptive factors like trade and lower GDP are pointing to an economic downturn, many of the positive factors we have highlighted in our previous publications continue to be prevalent. As stated in PwC’s publication Winning through M&A in the next recession, the M&A environment is cyclical and has historically followed economic downturns, as capital available for deals typically decrease. We believe an economic downturn will be unlike the last historic downturn as the fundamentals of global economies, particularly China and the United States, are much stronger, a sort of soft landing growth recession. 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.

Positive factors impacting the deal-making landscape in 2020:

• Record levels of dry powder from private equity funds and healthy corporate balance sheets indicate sufficient levels of capital to pursue acquisitions. Downturns usually see increased deal supply so there are opportunities for deal makers to strike attractive deals and create tremendous value for their organizations.

• High valuations have been a factor for the decline in deal volume from 2018 to 2019. However, as the economic outlook declines, valuations will likely fall, which will change the supply and demand balance in favor of buyers creating M&A opportunities.

• The prominence of megadeals is reflecting a decoupling of the megadeals segment of the M&A market from the lower-growth global economic environment. We believe that decoupling will continue and megadeals will remain prevalent.

• Liquidity in the equity and debt markets combined with cheap lending rates will allow companies to access a favorable lending environment to finance deals.

Disruptive factors likely to create a pause in deal making in 2020:

• The Chinese and US economies are pointing to economic slowdowns as GDP levels slump. Chinese annual growth rates for FY19 were 6-6.5% and could fall below 6% in 2020; the US economy grew 1.9-2.1% and is expected to grow at 1.8% for that same period.

• Uncertainties as it relates to length of economic slowdowns around the globe, Brexit, impending US elections, and the continuing trade negotiations, primarily between the United States and China, remain on the minds of deal makers.

• Global protectionism is deterring the level of cross-border deal targeting as companies are shifting their focus to regional targets.