Financial investors in the industrial manufacturing sector stepped off the sidelines in the first quarter of 2013, recording a substantial increase in merger and acquisition (M&A) activity. While strategic investors continued to drive deal activity during the first quarter, financial investments were well ahead of the pace for the same period in 2012 and accounted for 39 percent of total transactions compared to just eight percent in the fourth quarter last year, according PwC US.
Overall M&A activity slowed in the first quarter of 2013 as announced volume and value were the slowest of any quarter over the past three years. The first quarter recorded 28 transactions worth $50 million or more for a total deal value of $9.3 billion, down 30 percent from the previous quarter, which generated 40 transactions totaling $12.7 billion. The industrial manufacturing sector also witnessed a significant decline in both volume and value from the first quarter of 2012 with 42 deals worth $17.2 billion.
“Given the decline in overall transaction activity during the first quarter, deal valuations dropped below longer-term historical norms, as acquirers focused less on cross-border deals and more on consolidating their local markets, reflecting a more guarded approach to M&A,” said Bobby Bono, U.S. industrial manufacturing leader for PwC. “We remain cautiously optimistic about deal activity for the remainder of the year given the potential for companies to gradually shift from a primary focus on cost-cutting and organic expansion initiatives toward more acquisitive growth strategies given the continued global recovery.”
According to PwC, the industrial manufacturing sector recorded two mega deals (transactions worth $1 billion or more) in the first quarter, totaling $5.2 billion. Mega deal activity accounted for 55 percent of total deal value, however, the majority of deals in the first quarter fell into the middle market category (transactions worth $50 million to $250 million). “This trend may continue through the remainder of the year if manufacturing executives continue to focus on strengthening supply chains and core operations while divesting non-core or underperforming assets,” said Bono.
The long-time subsector leader in M&A, industrial machinery led deal activity in the first quarter, recording 46 percent of total deals as European financial acquirers bought local industrial machinery and rubber and plastic product companies through leveraged buyouts. Smaller, more fragmented segments also completed deals in the first quarter including fabricated metals and electronic and electrical equipment, representing 18 and 14 percent of activity respectively. “Although overall M&A activity was weak in the first quarter, targets involved in energy end-markets remained of high interest due to the relatively favorable growth prospects in this sector, ultimately contributing to the growth in industrial machinery acquisitions as the secular trend toward pump-related acquisitions continues,” said Bono.