PwC sends regular merger and acquisition and related reports. This update seems timely as I’ve heard from a number of companies restructuring. It’s been some time since I attended a Hexagon conference where they announced spinning off manufacturing software now known as Octave. Or GE Vernova spinning off manufacturing software to private equity who also picks up ThingWorx and Kepware from PTC then spinning that combination off. I just saw news from the Honeywell conference that detailed its divestitures.
Industrial manufacturing M&A has entered a transformative phase, with deal values hitting a record $173 billion over the past year, a 28% increase over FY25’s $135 billion. This surge is driven by the convergence of AI infrastructure, grid modernization, and defense/resilience, all pulling capital toward a shared industrial supply base. Mega-deals, scope-driven acquisitions, and strategic buyers are deploying capital like never before, while macroeconomic uncertainty has become a permanent feature, not a headwind.
Key findings:
- Mega-deals are dominating. Transactions above $5 billion now make up 56% of deal value, up from 18% in FY24, with the largest deals capability-driven rather than scale-focused.
- Value growth is widespread. Average deal size, excluding mega-deals, grew 31% from FY24 to $169 million.
- Convergence is concentrating value. Power equipment, thermal management, automation and controls, and advanced components are attracting outsized valuations.
- Strategic buyers are dominating. Strategic acquirers account for 86% of the last twelve months’ (LTM) deal value, the highest concentration on record.
- Corporate divestitures are accelerating. Conglomerate simplification is generating a rich pipeline of carve-outs.
Average deal size tells a compelling two-year story: $155 million in FY24, $288 million in FY25, and $375 million in the latest annual period—a 139% increase reflecting buyers consistently paying up for transformative capabilities rather than incremental scale. A single $35 billion transaction in April 2026 accounted for roughly half of the increase over FY25, underscoring the outsized influence of a few key transactions, though rising valuations are not solely a mega-deal phenomenon.
I’m not surprised by this analysis of concentrating value.
Convergence is concentrating value into a narrow set of assets. Industrial manufacturing sits at the crossroads of AI infrastructure, grid modernization, and defense and resilience spending, all drawing on the same constrained supply base of power equipment, thermal management, automation and controls, and advanced components. From 2021 to 2025, industrial manufacturing accounted for 155 convergence deals and $532 billion in transaction value, more than any other industrial subsector.
AI must make an appearance. Usually this technology for our market solves specific problems eschewing the hype of the AI companies competing for hype and investment dollars rather than solving specific problems.
AI and automation are now central to investment diligence. Investors increasingly demand evidence of AI impact in the income statement through productivity improvements, labor cost offsets, and predictive maintenance savings, before committing to premium valuations.
Private equity, while more disciplined than in prior cycles, remains active in the upper mid-market, deploying capital into buy-and-build platforms in areas such as test and measurement, flow control, filtration, and thermal management. Strategic acquirers, however, are dominating at scale, accounting for 86% of LTM deal value and 86% of YTD 2026 volume, the highest concentration on record.
Corporate divestiture activity is broad-based. Conglomerate simplification, exemplified by Honeywell’s three-way separation, is generating a rich pipeline of carve-outs across automotive-exposed, advanced materials, and non-core industrial assets as companies realign portfolios toward electrification, software, and defense-related manufacturing.
The macroeconomic backdrop has become a permanent structural feature rather than a cyclical headwind. Cross-border deal value has reached 56% of the LTM total, up from 30% in FY22, driven by global supply chain reconfiguration and reshoring investments, with US-targeted deal value nearly doubling in FY25 to $72 billion. Tariffs, geopolitical friction, interest rate volatility, and AI-driven infrastructure demands are now constant factors, fueling M&A rather than suppressing it.
Key M&A trends set to influence industrial manufacturing
Uncertainty is the new operating environment—and the market rewards action over hesitation.
Two forces will define industrial manufacturing M&A in the second half of 2026.
The first is convergence. AI infrastructure, grid modernization, and defense/resilience spending are pulling capital toward the same constrained industrial supply base: power equipment, thermal management, automation and controls, and advanced components. This is concentrating value in assets that serve multiple demand streams simultaneously, and premiums reflect it: 15 to 30% above sector medians, peaking in AI compute and data center-exposed assets. Dealmakers who have not yet organized their acquisition thesis around this overlap are already behind.
The second is the divestiture pipeline. Conglomerate simplification is accelerating. Among industrial companies executing $5 billion-plus acquisitions since 2021, nearly 69% also divested, rising above 86% for serial acquirers. The most attractive carve-outs in advanced materials, automation components, and energy transition assets will not wait for macro clarity.
What dealmakers should do now:
- Underwrite convergence, not single-theme exposure. Assets serving two or three demand streams command durable pricing power. Assets serving only one face selective competition. Diligence should stress-test capability density against converging demand, not cost takeout against a single end market.
- Demand measurable AI returns. Buyers now require evidence of productivity gains in the income statement, including throughput improvements, labor cost offsets, and predictive maintenance savings, before paying premium valuations. The era of paying up for AI narratives without quantifiable impact is ending.
- Move early on carve-outs. Sellers processing divestitures know exactly what they are funding next. Position ahead of the process. Inaction is its own strategic risk. The dealmakers capturing value in this environment are not waiting for certainty. They are underwriting the structural trends already visible in the data.
“Convergence is concentrating value into a narrow set of assets. The next six months will sharpen the divide between disciplined acquirers and everyone else.” – Michael Fiore, Industrial Products Deals Leader
The bottom line: What industrial manufacturing dealmakers should watch
The 2025–2026 acceleration is structural, not cyclical. Deal value has reached $164.0 billion, with convergence concentrating premiums into a narrow set of constrained infrastructure assets. Accelerating corporate divestitures are creating a rich pipeline of actionable assets. Macro uncertainty is a permanent feature, not a passing headwind, and cross-border deal value has surged to 56% of the current-year total, reflecting global supply chain reconfiguration. Dealmakers that align capital strategies with infrastructure resiliency, AI build-out, electrification, and defense spending will find significant opportunities in the second half of 2026. The market rewards action over hesitation.
