Industrial manufacturing deals insights: 2021 outlook

Executive summary

2020, a year dominated by uncertainty stemming from the COVID-19 pandemic, also upended the global M&A market. While global M&A has seen a recovery during the second half of 2020, the recovery in industrial manufacturing deal-making has been muted relative to other sectors. Industrial manufacturing M&A rebounded in Q320; however, deal-making in the sector cooled off in Q420 as a resurgence of COVID-19 hit the US, Europe, and parts of Asia. Overall, industrial manufacturing deal value and deal volume declined by a significant 40% and 28%, respectively, in 2020 compared to 2019. Deals in H220 were driven by access to capital in the form of private equity and special purpose acquisition company (“SPAC”), with a focus on innovation and scale.

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Challenges and opportunities for deals in 2021

PwC's Deals Sector Leader John Potter discusses the trends driving deals and outlook for 2021.

PwC's Deals Sector Leader John Potter discusses the trends driving deals and outlook for 2021. Explore national deals trends

Industrial manufacturing deals outlook

The challenges and uncertainty experienced in 2020 due to COVID-19 will likely continue into 2021, as many of the world economies are facing a resurgence of the virus as we head into the New Year. However, with further progress being made on vaccines, there is hope that this uncertainty will be short-lived. We expect deal activity in 1H21 will continue to recover from sector lows seen during the peak of the healthcare and economic crisis. As we emerge from the pandemic, we anticipate M&A activity in the sector will continue to be fueled by access to emerging sources of capital, investment in innovation, and the right-sizing of operations to meet the new market demands of a post-pandemic world.

“Twenty twenty was a year filled with uncertainty due to COVID-19 which shook the M&A landscape. Deal makers have been forced to be creative and look forward to a post-pandemic world with the increased use of SPACs to raise capital and focus on technology transactions, which are trends that we believe are here to stay.”

Paul Elie, US Industrial Manufacturing Deals Leader

Key deal drivers

Future of capital

When we look back at 2020, we will remember it as the year of the SPACs. These have become a driving force in the M&A landscape with more than 50% of all IPOs in the US in 2020 represented by SPAC IPOs (with over $67 billion in capital raised). SPACs are uniquely positioned to provide development-stage companies quick access to capital allowing them to rapidly scale operations to exploit emerging market opportunities. We expect to see increased SPAC activity involving development stage enterprises in areas such as EV-charging infrastructure, power storage, and 3D-Printing, to name a few. 

Changing political landscape

With the anticipated transition to a Joe Biden administration in January 2021, we expect to see greater governmental regulation, higher income tax rates, and a softening position on trade.  The degree of change in these areas is significantly dependent on who controls the US Congress, which will not be known until January 2021. Given these expectations -- coupled with a resurgent COVID-19 globally, and uncertainty around future governmental stimulus to combat the economic impacts of the pandemic -- the capital markets could become more volatile which would be unfavorable for deal makers.

New ways of being

As the pandemic continues to create new ways of living, in particular around how businesses and consumers procure goods and services, digital supply chain, and sales and marketing are becoming increasingly important to industrial manufacturing companies. Companies with limited digital supply chain and sales and marketing capabilities are struggling to keep up with their contemporaries and many of those are turning to M&A as a tool to ignite their digital strategies to help them conduct business in a more efficient and touchless manner while enhancing the overall customer experience. 

Opportunities in innovation

We expect companies to continue to invest in additive manufacturing, digital factory, digital supply chain solutions, and technologies related to sustainability. The COVID-19 pandemic has proven that companies need increased technological capabilities to reduce the risk of operational disruptions due to human causes as well as lower supply chain risks, while planning for a future with increased focus and scrutiny on sustainability metrics.

Shifting industry paths

While the New Year will come with its own challenges and opportunities, the economic impact of the COVID-19 pandemic will still be felt in a meaningful way. As with any crisis, there have been winners and losers. Companies in the individual leisure space (e.g., recreational vehicles, outdoor furniture, and sporting equipment, etc.) will continue to be successful as local lockdowns are in place around the world. Many industrial manufacturing companies serving hard-hit end markets such as automotive and airlines will need to evaluate suitable right sizing measures to maintain or improve their competitive position.  

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Paul Elie

Industrial Products Deals Leader, PwC US

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Bobby Bono

Industrial Manufacturing Leader, PwC US

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