M&A deal volumes in the manufacturing sector will be subdued over the coming year amid COVID-related uncertainty, but carve-out deals could remain a significant feature of the market, according the latest report from accounting and business advisory firm BDO.
BDO’s Manufacturing Deal Review 2019, published today, reveals that 12 of the top 20 M&A transactions in the manufacturing sector last year were carve-outs as management teams came under pressure to realign and refocus portfolios by spinning off non-core operations. With COVID-19 placing even greater pressure on corporates this year, this trend could remain a key theme in 2020.
According to BDO’s analysis, nearly 700 manufacturing deals were completed in 2019 with Engineering Services coming out as the most active sector accounting for 27% of deals, followed by Building Products (14%) and Food & Drink (12%).
Around one third of these deals were cross-border transactions. In total, 133 UK businesses were acquired by international groups, with US and Canadian buyers accounting for almost half of inbound investments. Meanwhile, UK investors acquired 120 targets abroad, shoring up interests in Europe and US markets.
Buy-outs represented 1 in 5 UK manufacturing deals, many backed by private equity, which had record levels of dry powder to deploy. Private equity retains a strong interest in parts of the manufacturing sector with a particular appetite for companies displaying a technological edge, recurring revenue streams and competitive advantage.
Roger Buckley, UK Industrials Mergers & Acquisitions Partner at BDO, says: “Manufacturing was a vibrant sector throughout 2019 with a steady level of M&A activity. However COVID-19 has put many M&A processes on hold and is expected to inflict a distinct blow to the global economy this year.
“Manufacturing continues to be a critical part of the UK economy and over the recent months manufacturers have continued to demonstrate their resilience by adapting to the challenges they are facing. Businesses we are speaking to are keen to reengage with M&A activity in due course, once the virus and its effects are behind us. In particular we expect to see corporates review their portfolios with a view to preparing non-core operations for sale.”