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After a tumultuous year in 2020, global mergers and acquisitions (M&A) came back strong in 2021 and are continuing on that trajectory as we move further into 2022. Industrial manufacturing has been a key target for investment, mergers and acquisitions even as both manufacturers and distributors continue to struggle with ongoing labor constraints and supply chain disruptions (among other forces).
In its recent Industrial manufacturing: Deals 2022 outlook report, PwC reviews the industrial manufacturing deals that took place over the past year. During that period, it says deal value for industrial manufacturing M&A grew by 50% in 2021 (compared to 2020), while deal volume remained stable during that period.
In 2021, there was also a growth in “megadeals,” or those transactions exceeding $1 billion in deal value. This uptick was driven by the need to “access capital to scale up early-stage technology-driven ventures (including from special purpose acquisition companies known as SPACs),” PwC reports, “as well as by the traditional need for M&A focus on driving scale, product portfolio and geographic expansion.”
The Key Deal Drivers
Right now, PwC says some of the key deal drivers in the industrial manufacturing space include, but aren’t limited to;
Optimizing portfolios and divesting to invest. The pandemic pushed companies to carry out strategic reviews of their portfolios to assess not only critical acquisition needs to buildout capabilities, but also divestitures of non-core assets in order to focus on—and invest in—new and existing growth areas. “With ample willing buyers with substantial purchasing power, many companies took advantage of robust valuations in 2021 to execute strategic changes,” PwC states, noting that the rebound in M&A activity in 2021 was fueled by companies investing inorganically through M&A to drive scale, expand product portfolios and extend into new markets. “These trends are expected to remain critical as behavior shifts accelerated by COVID-19 are sustained beyond the pandemic.”
Unlocking value in a high-multiple, high-expectations environment. The pandemic also demonstrated the need for companies and other M&A stakeholders to “accelerate the transformation of their digital capabilities,” says PwC. “We expect companies to continue to invest in additive manufacturing, digital development (including digital supply-chain solutions) as well as in technologies supporting sustainability and mitigating deepening supply-chain risks.”
Navigating policy uncertainty during an election year. PwC says that 2022’s mid-term election and recent policies (including those impacting taxes) are ever-present in strategic planning and positioning. “M&A activity is expected to remain strong in 2022 as companies and private equity firms seek to complete acquisitions and divestitures ahead of elections,” it says, “and any potential policy shifts—as founders eye exits ahead of any possible changes in the tax regime.”
Slower SPAC acquisitions. PwC says committed capital continues to drive M&A activity growth, and that of the top 15 deals in 2021, six were acquisitions made by SPACs. However, it adds, given only two of the six acquisitions were in the second half of 2021, this may suggest a slight pause and reflection on activity. “SPACs are uniquely positioned to provide development-stage companies quick access to capital,” PwC points out. “As such, we expect to continue to see SPACs acquire development-stage companies in areas such as EV-charging-related infrastructure. However, we expect the pace of SPAC acquisitions to slow in 2022.”
Key Targets for Investors
The industrial manufacturing sector is broad and varied and includes a wide number of companies and specialty areas. In identifying some of the hottest manufacturing sectors for M&A right now, Accelerated Manufacturing Brokers, Inc.’s Frances Brunelle points to additive manufacturing, air purification, agricultural robotics, chemical manufacturing and the Department of Defense (DoD) as the top five targets for potential mergers and acquisitions.
Brunelle also says makers of electric vehicle components and electronic contract manufacturers will be in investors’ sights, followed by food manufacturers, companies involved with infrastructure repair and those in the medical packaging field.
