PwC have released a report on industrial manufacturing merger & acquisition (M&A) activity for the first half of 2025. The report suggests a recalibration of capital allocation in response to shifting macro conditions.
Deal volume moderated amid new US tariffs, geopolitical volatility and selective private equity (PE) engagement. Yet, investors are pursuing high-conviction opportunities aligned with long-term structural trends. Strategic buyers and sponsors are doubling down on automation, defense and energy transition — sectors where innovation, policy support and resilience to cyclicality are driving premium valuations and sustained interest.
Key developments include:
- Tariff-induced valuation gaps: Newly implemented US tariffs introduced friction into cross-border dealmaking, stalling transactions with international exposure and widening bid-ask spreads.
- Strategic divestitures accelerate: Corporations are intensifying portfolio optimization efforts, shedding non-core assets to refocus on high-growth areas. Notably, several industrial conglomerates announced spin-offs in the advanced materials segment.
- Tech-driven acquisitions: Demand for automation, AI and digital transformation capabilities continues to drive acquisitions aimed at enhancing productivity and operational agility.
- Supply chain reconfiguration: Heightened geopolitical and trade risks are prompting companies to reevaluate supply chain dependencies. This is fueling interest in domestic and nearshore M&A as part of broader resilience strategies.
- PE’s selective deployment: While overall PE activity slowed, firms remain active in resilient sectors — particularly technology and business services — where tariff exposure is limited and long-term value creation remains viable.
Looking ahead: Navigating uncertainty with strategic focus
Key strategic considerations include:
- Staying ahead of policy shifts: Ongoing trade negotiations and potential regulatory changes could materially affect cross-border deal flows. Proactive monitoring and scenario planning will be essential to maintain deal momentum.
- Reinforcing due diligence discipline: In a complex geopolitical and economic environment, thorough due diligence remains critical to assess risk, validate value creation potential and enable strategic alignment.
- Harnessing technology for competitive advantage: Automation, AI and digital tools are increasingly central to industrial competitiveness. M&A and internal investment targeting these capabilities should be a strategic priority.
- Targeting high-growth, policy-backed sectors: Government-backed initiatives in defense and infrastructure continue to support robust deal pipelines. Strategic acquirers should explore opportunities where public funding and private innovation intersect.
- Reshaping supply chains through M&A: As companies adapt to geopolitical risks and cost pressures, acquisitions of nearshore or domestic suppliers can enhance supply chain resilience and agility.
