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Industrial manufacturing deal activity expected to increase with continued focus in mid-market space
We expect mergers and acquisitions (M&A) activity to increase in the industrial manufacturing sector in 2025, propelled by a more favorable economic environment and the conclusion of the US presidential election. Specific macro tailwinds include:
- Increased investor confidence following the election outcome
- A 75-basis-point reduction in interest rates since September 2024
- Inflation decreasing to approximately 3%
Companies are investing in several key manufacturing-related strategic areas, which are expected to accelerate M&A activity due to the time advantage of buying over building. These include:
- Digitization and technologically advanced equipment, which drive growth in fields such as robotics, automation equipment, sensors, monitoring and measurement devices. Companies are pursuing manufacturing efficiency gains and performance improvements to offset margin compression and support growth.
- Aging equipment and infrastructure, which create a need for replacement or refurbishment work, as well as the sale of parts and components for ongoing maintenance and repair needs.
- A continued focus on environmental sustainability, such as energy efficiency, reduced emissions and decarbonization, which drives the replacement of equipment and infrastructure with products that help companies meet regulatory standards, even if these are relaxed under the new administration.
- Government funding, which provides companies with resources to replace, upgrade or repair existing equipment and infrastructure.
Note: The primary M&A data source used in the 2025 outlook is S&P Capital IQ.
Strategic thinking
Industrial manufacturing M&A deal volume in 2024 was broadly consistent with 2023 volumes, driven by middle market deal activity. M&A deal values were stable, highlighting a cautious approach in the wider market toward larger-scale investments. There was continued emphasis on smaller to midsize add-on or bolt-on investments that align with core operations and offer strategic value and targeted synergies.
The outcome of the US presidential election introduced a measure of sector stability, expected to bolster investor confidence. This newfound certainty could pave the way for larger megadeals in the manufacturing sector in the upcoming year as companies consider larger consolidations in their dealmaking. While the industrial manufacturing sector maintained a more measured and risk-averse approach to M&A, there is potential for increased activity as market conditions stabilize and economic confidence grows.
“The M&A outlook for Industrials is strong going into 2025, driven by improved macroeconomic influences, shifting policy regulations and divestitures to focus on core operations and strategic capital investment.”
The bottom line
The industrial manufacturing sector has adopted a measured approach to M&A during the past couple of years, resulting in stable transaction volume and deal values. However, the M&A market is expected to grow in 2025. Growth is anticipated to be driven by macroeconomic conditions, policy shifts, and digitization and automation efforts to manage margin pressure. Companies that are prepared to act quickly and confidently in this environment, seizing quality assets that align with their strategic needs, will drive long-term value for their shareholders. Additionally, companies that divest non-core assets will benefit from deploying their capital to remain competitive in the marketplace.
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