PwC sends industrial manufacturing market updates periodically. They focus on business level merger and acquisition activity. They report industrial manufacturing M&A was strong in the first half of 2022 but slower than in 2021, which was driven by pent-up demand.
Average deal value decreased over 30% in the first half of 2022 from the second half of 2021. Activity in the first half of 2022 was focused less on transformational megadeals (transactions exceeding $1 billion in deal value) and more on smaller, targeted acquisitions and divestitures. This was driven by buyers building out platforms and filling in strategic market gaps, sellers divesting non-core divisions or assets and broad concerns of US regulatory scrutiny.
Recognizing concerns such as inflation and war in Europe, they continue, companies, however, face ongoing market headwinds of economic and geopolitical uncertainty, including record-high inflation, which will likely continue to influence the M&A landscape into the second half of 2022.
The future looks interesting for those who are prepared.
While some expect the global economy is headed for a near-term slowdown, underlying economic fundamentals remain strong. Private equity firms with dry powder and corporations with significant cash balances are expected to drive significant M&A activity. This, coupled with a large number of carve-out divestitures being contemplated, provide supply for potential transactions.
A few nuggets of advice:
- A targeted focus may be necessary to manage headwinds from global and economic uncertainty.
- Given global forces are likely to continue to drive uncertainty into M&A processes, private equity and strategic buyers alike should critically evaluate individual transactions in a targeted and strategic manner.
- Sellers may find setting a realistic projection plan and addressing these market risks to be a moving target. They may instead find assessing upside and downside risks to the projection plan to be a more successful approach for discussions with potential buyers.
- Buyers, on the other hand, may then have the challenge of securing lending for a transaction in uncertain global market conditions. M&A success may depend on using a focused approach to acquisitions, including factoring in downside market risks.