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Manufacturing M&A deals

Middle market manufacturers are proactively taking steps to seek value through scale by participating in mergers and acquisitions.

The manufacturing sector witnessed a year of mixed results in 2019 with several ongoing discussions on whether growth in the sector is merely slowing or is in decline. However, M&A activity tells a different story.

In a low growth environment, financial investors with significant funds to deploy continued to drive M&A in 2019, and strategic buyers focused on M&A to accelerate growth and benefit from megatrends.

Middle market manufacturers are proactively taking steps to seek value through scale by participating in mergers and acquisitions with similar-size corporations. Moreover, middle-market acquisitions are highly preferred in the manufacturing industry, given their capability to adapt as per the situation quickly.

Private equity firms were a significant driver of the global deal volume with an abundance of available investible capital. The private equity assets under management is estimated to have crossed the $4 trillion mark in 2019, and financial buyers are looking to deploy this record amount of capital. They are searching for sizable investments across sectors including, manufacturing. Adding to this was the low-interest rates across the globe and the availability of cheaper debt that continued to support private equity deals. These market fundamentals helped the manufacturing sector outweigh the economic uncertainties.

Consolidation was another key trend in the manufacturing industry in 2019, with companies aiming to provide one-stop-shop solutions to customers. Companies acquired to complement their existing product lines, enter additional product categories, expand market reach, or to garner new technological capabilities. In tough times corporates in their fight to maintain healthy profits have been revisiting their business models. Along with the introduction of new products, manufacturers are also focused on offering new services by leveraging their products as platforms for service delivery.

Digitization is driving M&A activity in the sector as strategic buyers seek to acquire growth through new technology and are ushering in a new era of productivity and reinvention. Industry 4.0 is rewriting the rules of the game, and manufacturers are more focused on the bigger picture that demands a connected manufacturing blueprint. More corporates are investing in new technologies to digitize supply chains and provide complete lifecycle support for their customers. Access to technology is essential in today’s business context, but at the same time, companies must be able to scale the benefits.

The food and the industrials machinery and equipment manufacturing companies have been especially active in 2019. With the rising market demand for healthy food options, manufacturers are making alterations as per consumer preferences to continue to be relevant. Companies have been on the hunt for new brands to add to their product portfolios. Similarly, M&A in industrial machinery and equipment companies saw activity from both strategic and financial buyers with a higher interest in targets with patented products and market domination.

What’s ahead for 2020?

There is no denying that the coronavirus outbreak is dominating the list of most-cited threats to global economic growth as per a recent McKinsey Survey, displacing all the other risks of 2019. While the coronavirus outbreak suggests some signs of softness in manufacturing, it is worth noting that all the positive factors that have driven the market in 2019 are still in place.

Traditionally companies either end up underestimating uncertainties or end in a decision paralysis resulting in a pullback of spending. However, it is this time when companies need to be more aggressive and capitalize on market opportunities instead of entering a loop of less innovation, less demand, and ultimately less growth. A wait-and-see approach can prove to be damaging, and manufacturers should continue to act.

While it is too early to know what the human and financial cost of coronavirus will be around the globe, companies should be ready for both opportunities and challenges and be prepared to capture value quickly with a focus on their deal rationale.

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