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Transformative deals drive Industrial Manufacturing M&A activity
Large transformative deals may be making a comeback, as the first four months of 2024 witnessed a rise of larger deals and an uptick in industrial manufacturing (IM) M&A value over the same period in the prior year. Improved executive confidence, coupled with profitability growth, supports the uptick in larger deals and activity, despite subdued deal volume in late 2023 and early 2024 compared to the record highs of 2021. Expectations of easing monetary policies and a clearer picture of policy direction after the elections later this year will likely fuel an increase in deal activity in late 2024 and into 2025.
Key drivers of recent industrial manufacturing M&A trends include:
- Deal volumes in the first four months of 2024 were concentrated within borders, with 80 percent of deal activity taking place domestically compared to 60 percent to 70 percent historically. This continues to reflect the supply chain management risk driven by geopolitical uncertainty that deals are looking to address.
- Stubbornly high inflation and interest rates led some industrial manufacturers to focus on midmarket deals and leverage healthy balance sheets to support strategic acquisitions. Private equity portfolio companies also continue to be active in completing bolt-on strategic investments as they look to the future for growth and potential exits.
- Stabilization of input costs, such as materials, labor and freight, further supports continued M&A activity in the midmarket and bolt-on deals through the end of 2024 and into 2025.
- Improved executive confidence is expected to support the current level of deal activity as well as to drive an increase in deals through the end of the year and into 2025, including large transformational deals.
Note: The primary M&A data source used in the midyear outlook is S&P Capital IQ.
How market conditions are impacting M&A strategy
Improved earnings and executive confidence are emboldening companies to continue filling strategic gaps with midmarket acquisitions and strategic bolt-on deals. Confidence, or an increased comfort with the current levels of uncertainty, is also driving companies to prepare for and proceed with divestitures. However, deal activity is likely to be choppy in the near term due to the uncertainty around the debt markets and interest rates as well as the upcoming elections and their potential impact on regulatory policies.
“Deal activity in industrial manufacturing will likely continue at the current, stable level for the near term, with some choppiness due to rate cut delays and upcoming elections. However, numerous tailwinds point toward 2025 being a very robust deal market, both for buyers and sellers.”
The bottom line
Midmarket and strategic bolt-ons continue to be a theme in industrial manufacturing M&A, driven by the risk profile from input costs, interest rates and geopolitical uncertainty. Companies are starting to navigate the inflationary and regulatory environment and are gaining confidence for larger, more transformative deals. To remain competitive, companies should invest time toward strategic review and divestiture preparatory work so they are ready to take decisive action as further clarity unfolds.
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