Industrial Merger and Acquisition Activity

Industrial Merger and Acquisition Activity

A couple of reports and studies on industrial manufacturing merger and acquisition activity have popped up recently. One came from my usual source—PwC. The other arrived from a new contact—Mergermarket.

First PwC.

The following is an analysis of Global Industrial Manufacturing deals with disclosed values greater than $50 million.

The Global Industrial Manufacturing sector closed 2016 with two strong quarters of deal activity. The deal market in the first half of 2016 was suppressed primarily due to geopolitical concerns such as Brexit, slowing growth in China, and the impending US presidential election.

Although 2016 finished strong, deal value ended down 3% and volume ended down 18% compared to 2015, principally driven by the softness in the deal market in the first half of the year.

The largest deal in 2016 was the Johnson Controls/TYCO megadeal valued at $22.7 billion, which occurred in Q1 of 2016. This drove the average deal size to $404 million from $342 million in 2015.

With two consecutive quarters of improved deal activity (both value and volume), we are optimistic 2017 will likely be a good environment for deal makers. The speculation of reduced tax rates, infrastructure investment, health care reform, and reduced government regulation in the US are positive factors for many deal makers. Further, similar to 2016, deal making in 2017 will be driven by inorganic growth strategies focused on product and service differentiation through access to new markets, customers, and technologies.

Key Trends and Highlights

  • Aggregate disclosed deal value for 2016 vs. 2015 was $91.3 billion and $93.7 billion, a 3% decrease.
  • Deal volume decreased by 18% in 2016 vs. 2015, with 226 vs. 274total deals, respectively.
  • M&A activity showed signs of continued comeback as Q4 2016 had 65 deals with a total aggregate disclosed value of $25.1 billion vs. 60 deals and $20.2 billion of aggregate disclosed value in Q3 2016.
  • The largest deals in Q4 2016 included CK Holdings intended acquisition of Japanese Calsonic Kansei Corp. for $4.5 billion and a US-based investor group’s acquisition of German Atotech BV for $3.2 billion.
  • There were three transactions exceeding $1 billion in Q4 by financial buyers with a total aggregate value of $9.2 billion, 37% of total value for the period.
  • M&A activity continues to be driven by deals in the Industrial Machinery subsector. Value increased 6% compared to 2015 and doubled compared to Q3 2016. This was the only category that recorded year-over-year growth and contributed to 59% of deal value and 41% of deal volume in 2016.
  • Asia & Oceania remains as the region with the highest M&A activity. In 2016, acquirers in the region accounted for 41% of deal value and 61% of volume.

Now Mergermarket

Mergermarket has released its Global Industrials & Chemicals M&A Trend report for 2016 (Q1-Q4). Take a look at the full report Here.

A few key findings include:

Despite a series of political shockwaves leading to market uncertainty, global Industrials & Chemicals’ M&A activity still managed to hit its highest level on Mergermarket record (2001). A total of 3,356 deals worth US$ 525.2bn makes it the most active sector based on deal count and up 11.3% in terms of deal value compared to 2015 (US$ 471.8bn)

The US continued to dominate global Industrials & Chemicals activity last year, with 832 transactions valued at US$ 207.2bn, accounting for nearly 40% of the sector’s overall value. Bayer’s headline- grabbing US$ 65.3bn takeover of Monsanto contributed almost a third of the sector’s deal value. The deal also helped Germany boost its outbound activity to US$ 142bn. Germany’s appetite for outbound deals will likely continue into 2017 as German corporates take on the Industry 4.0 challenge – a government-backed initiative to unite technology within the manufacturing industry – according to Mergermarket intelligence

Industrials & Chemicals in Europe (US$ 159.4bn, 1,404 deals) saw a 45.4% jump in terms of deal value compared to 2015 (US$ 110bn, 1,361 deals). Chinese investors in particular showed a growing appetite for Europe Industrials & Chemicals, leading to a record value of US$ 58.4bn with 55 deals. This however is expected to ease this year over protectionism concerns against Chinese buyers and domestic capital controls. As such, Chinese companies may avoid overseas acquisitions for now and focus on organic growth

Drivers

Fueled by the government-backed Industry 4.0 initiative, in an effort to advance technology in the industrial space, German corporates are expected to have an even greater influence over the Industrials & Chemicals sector this year.

Activity across Asia-Pacific (including Japan) saw a significant uptick in the automotive sector driven by an increasing willingness from Asian industry players to carve out non-core businesses, such was the case in Nissan Motor’s US$ 4.5bn disposal of auto parts maker, Calsonic Kansei, to KKR. This is again likely to play a role this year as international industry players’ show an increasing hunger to acquire technology and know-how.

The rise of Chinese M&A has also contributed to the growth despite a relative slowdown in the manufacturing sector. A race to develop technology has created fierce competition among companies bidding for European and US targets to move up the supply chain and to gain industry know-how.

As the sector’s most dominant player, the US could experience a more uncertain 2017 as the effect of president-elect, Donald Trump, still remains a large unknown. But there are positive sounds being made with suggestions he would call for comprehensive tax reform and substantial changes to trade agreements, existing regulation and immigration policy, in addition to the claim that he would like to see significant investments in infrastructure.

 

 

Industrial Merger and Acquisition Activity

2015 A Hot Year For Industrial Merger Activity

MergerMarket released a report on merger and acquisition activity during 2015. It was the hottest year since 2007. These get interesting. I just saw a blog post somewhere that stated that 40% of the companies on the Fortune 500 are no longer there. Some of these deals will contribute to further change in that list. Check out the entire report for specifics and charts.

Oh, and the authors believe that 2016 will be even hotter.

The Industrials & Chemicals sector recorded 3,118 deals worth US$ 474.3bn, the second highest value on Mergermarket record, up 16.5% in value compared to 2014 (3,263 deals worth US$407.1bn), thanks to a push in H2 2015, with 1,550 deals worth US$ 313bn, the largest H2 on record.

The report notes that M&A activity in China was strong. “Despite concerns over China’s slowing economy,  especially in manufacturing, Industrials & Chemicals as a whole, was able to have a strong showing. The year ended with 705 deals worth US$ 165.9bn in Q4 2015, the highest valued quarter in Mergermarket history, and a 16.4% increase in value compared to Q4 2014 (845 deals worth US$ 142.5bn). ”

Industrial Merger Activity in US

The Products and Services (1,497 deals worth US$ 181.4bn) sub-sector, traditionally the highest valued sub-sector, was slightly edged out by Chemicals & Materials (422  deals worth US$ 181.9bn) to be the highest valued sub-sector for the year. Chemicals & Materials was up 72.7% by value compared to last year, which saw 469 deals worth US$ 105.3bn. The Chemicals & Materials sub-sector was boosted by E.I. du Pont de Nemours and Company’s US$ 77bn acquisition of The Dow Chemical Company, and Air Liquide’s US$ 13.4bn acquisition of Airgas, of which the two deals combined accounted for half of the sub-sectors total value for the year.

The Industrials & Chemicals sector globally has seen a positive shift of late, especially in the US and Europe. The US led the way with 770 deals worth US$ 235bn in the sector, accounting for 49.6% of the Industrials & Chemicals sector’s total value, and up 55.9% compared to 2014. The largest sub-sector in the US was Chemicals & Materials with 108 deals worth US$ 121.7bn.