Industrial manufacturing deals insights: Midyear 2020

Industrial manufacturing M&A followed the global macroeconomic downward trend in March and April resulting from COVID-19, which led to the weakest first half in deal value since 2014.

Industrial manufacturing experienced a significant decline (46%) in deal value from the first half of 2019 to the first half of 2020, while deal volume declined 21% during the same period. The sector had five transactions greater than $1B, which accounted for 36% of the total deal value during the first half of the year. The largest transaction, Danfoss A/S’s acquisition of Eaton Corp PLC-Hydraulics Cylinder Business for $3.3B, contributed to an overall strong first quarter for the year. However, as the global pandemic began to ramp up in March 2020, industrial manufacturing started to see significant drop-offs in M&A activity as deal value and deal volume declined 63% and 36%, respectively, in Q2 2020 when compared to Q1 2020. 

loading-player

Playback of this video is not currently available

“As in any crisis there will be winners and losers. The winners will be those who have the financial capabilities and insight to take advantage of the opportunities that arise and have the experience and discipline to develop and execute on a fundamentally sound value creation plan.”

Paul Elie, US Industrial Manufacturing Deals Leader

High level trends and highlights

 

  • The industrial manufacturing sector has experienced a decline in deal volume and value in the first half of 2020.
  • Total deal value in H1 2020 amounted to $26.2 billion, a decrease of 46% as compared to the H1 2019. A similar downward trend was seen in deal volume in H1 2020 registering 958 deals compared to 1,206 deals in H1 2019, a 21% decline.
  • The deal value in Q2 2020 was the lowest in the last eight quarters primarily due to the impacts of the COVID-19 pandemic.
  • The top ten deals totaled $12.5 billion, accounting for approximately 48% of the total deal value in H1 2020.

 

 

  • The industrial manufacturing sector experienced a decline in transaction volume across all sub-sectors. Each sub-sector also experienced a decline in value except for miscellaneous IM and other, driven by the $2 billion acquisition of Kissner Group Holdings by Stone Canyon Industries LLC.
  • Industrial machinery exhibited the highest deal value and volume in H1 2020, accounting for 44% of the total deal value. Four of the top ten deals in H1 2020 originated from this sub-sector.
  • Although the rubber and plastic products sub-sector experienced a significant decline in deal value, the sub-sectors experienced only a  modest decline in deal volume H1 2020 relative to H1 2019, reflecting strong activity at significantly lower average transaction sizes.

  • Within-border deals provided the majority of H1 2020 deal value and volume. They contributed 76% of deal volume and 71% of deal value in H1 2020. Within-border transactions accounted for seven of the top ten deals in H1 2020.
  • Cross-border deals made up 24% of deal volume and 29% of deal value in H1 2020 and included the largest deal of Danfoss A/S acquiring Eaton Corp PLC’s hydraulics cylinder business for $3.3 billion.
  • The decline in cross-border activity in Q2 2020 can be attributed to the constraints of the pandemic, a trend we will likely see continue into H2 2020.

  • Asia and Oceania dominated H1 2020 deal value and volume. The region was the most active acquirer with 40% share in terms of deal value.
  • North America exhibited the second highest deal value, driven by the US with five deals among the top ten.
  • Africa and South America regions were notably low in the first half of 2020, both in terms of deal value and volume.



Industrial manufacturing sub-sector analysis

Industrial machinery is the highest contributor to the sector in terms of the deal value and volume in H1 2020, driven by the Eaton Corp/Danfoss A/S deal in Q1 2020. However, industrial machinery volumes were down 27% from H1 2019.

Fabricated metal products experienced a decline of 24% and 18% in the transaction value and volume, respectively. This sub-sector accounted for 15% of the total deal value in H1 2020, driven by three of the top ten deals.

Rubber and plastic products contributed 15% of the total deal volume in H1 2020. Deal value in the first two quarters has declined to $1 billion, as compared to $10.5 billion in H1 2019, which was driven by the $6.2 billion acquisition of RPC Group PLC by Berry Global International Holdings Ltd. 

Electronic and electrical equipment accounted for 28% of the total deal value in H1 2020. The sector has two deals listed among the top ten deals of H1 2020. In Q2 2020, the sub-sector contributed the most in terms of transaction value.

Miscellaneous IM and Other experienced an increase of 45% in deal value in H1 2020 as compared to H1 2019 driven by the $2 billion acquisition of Kissner Group Holdings.


Financial vs. strategic investors

Strategic investors funded $15 billion of deal value, accounting for 58% of the total value in H1 2020, and also continue to lead with 58% share of deal volume. Both types of investors experienced a drop in deal value and volume in H1 2020 as compared to H1 2019. During the first half of 2020, five out of the top ten deals were from strategic investors. In Q2 2020, financial investors outpaced strategic investors in terms of deal value, primarily driven by the deal where Tortoise Acquisition Corp acquired Hyliion Inc., the only Q2 2020 deal in the top ten.


Industrial manufacturing deals outlook

We expect deal volume and value in the second half of 2020 to begin to recover from the sector lows seen during the peak of the COVID-19 pandemic. We saw significant declines in transacted volumes in Apr-20 (108 announced deals) and May-20 (117 announced deals), which we expect will gradually increase and hit more normalized monthly levels of ~200 deals by early 2021. Historically, aggregate deal value has been driven by mega-deals where we anticipate seeing a decline over the next six to 12 months as companies focus on managing their way out of the pandemic and emerging stronger. Many companies will continue to focus on value preservation through cash flow and cost management measures as well as minimizing supply chain risk as their supply chains, most of which are less financially stable, also transition to a different way of doing business. We expect the following factors to drive a resurgence in M&A activity in the sector in the H2 2020: shifting industry paths, supply chain risk management and efficiency, the future of capital and need for technological innovation.

Our expectations by type of activity:

Shifting industry paths: As the pandemic has created a new way of living, overall declines in consumer spending and travel have led to a softening of industrial manufacturing end markets, such as automotive and aerospace & defense. The decrease in economic activity from the effects of the pandemic will very likely result in excess capacity in the sector for the foreseeable future resulting in the need for divestment of non-core assets, consolidation and, for the least fit to manage through the transition, bankruptcy. We believe this will drive an uptick in strategic deployment of capital by those corporate investors with strong balance sheets and opportunistic investment opportunities for financial buyers.

Supply chain: Given the uncertainty caused by trade and supply chain disruption we have seen during the pandemic, we expect to see a renewed focus on product sourcing and supply chain efficiency. As the trade war with China continues to play out and companies begin to re-evaluate where they produce and sell their products, supply chains will likely become more localized. This factor inherently will provide increased opportunities for M&A.

The future of capital: We expect to see continued low interest rates for the foreseeable future along with continued economic stimulus through the end of 2020 and potentially beyond. Furthermore, the decline and continued uncertainty in end market demand for industrial manufacturing products coupled with concerns over the economic impact of a resurgence of the virus in 2H 2020 will continue to impact valuations resulting in increased opportunities to use M&A as a strategic tool to create shareholder value.

Technological innovation: In the medium term, we expect to see companies invest in additive manufacturing, digital factory and digital supply chain solutions. Investment in these technological capabilities will result in increased machine-based manufacturing which will not only increase manufacturing efficiency but also reduce the risk of operational disruptions due to human causes (e.g., strikes, pandemics and the like) as well as decrease supply chain risk.

In summary: Albert Einstein said, “In the midst of every crisis lies great opportunity,” and the COVID-19 pandemic is no exception.  The economic impact of this pandemic will be felt in a meaningful way well into 2021. As in any crisis, there will be winners and losers. The winners will be those who have the financial capabilities and insights to take advantage of the opportunities that arise and have the experience and discipline to develop and execute on a fundamentally sound value creation plan.

About the data

The information presented in this report is an analysis of deals in the global industrial manufacturing industry. Deal information was sourced from Refinitiv and includes deals for which targets have an SIC code that falls into one of 111 industrial manufacturing industry groups. Certain adjustments have been made to the information to exclude transactions which are not specific to IM or incorporate relevant transactions that were omitted from the SIC industry codes.

This analysis includes all individual mergers, acquisitions, and divestitures for disclosed or undisclosed values, leveraged buyouts, privatizations, minority stake purchases, and acquisitions of remaining interest announced between July 1, 2017 and June 30, 2020, with a deal status of completed, partially completed, pending, pending regulatory and pending completion, and excludes all rumors and seeking buyers. Additionally, transactions that are spin-offs through distribution to existing shareholders are included.

Percentages and values are rounded to the nearest whole number which may result in minor differences when summing totals.

Contact us

Paul Elie

Industrial Products Deals Leader, PwC US

Bobby Bono

Industrial Manufacturing Leader, PwC US

Follow us

Required fields are marked with an asterisk(*)

By submitting your email address, you acknowledge that you have read the Privacy Statement and that you consent to our processing data in accordance with the Privacy Statement (including international transfers). If you change your mind at any time about wishing to receive the information from us, you can send us an email message using the Contact Us page.

Hide