Sunday, July 3, 2022

Manufacturing M&A deals jump by a third surpassing pre-pandemic level

M&A transactions involving UK manufacturers jumped by almost a third in 2021, with dealmaking surpassing pre-pandemic levels, new research by accounting and business advisory firm BDO has found.

BDO’s analysis reveals that 779 UK manufacturing deals completed in 2021, compared with 595 in 2020 and 686 in 2019.

Most manufacturing subsectors saw double-digit growth in activity levels, but the clear frontrunner was Engineering Services which saw deal volumes rise by 48% as businesses in the sector realised the opportunity to transact and gain injections of funding for growth.

Private equity (PE) buyouts accounted for around one in five deals in 2021, broadly in line with the previous year, but the number of buy-out transactions rose by almost 40%.

PE interest was particularly strong in the Industrial Automation sector, with buyout transactions accounting for 24% of deals. Another key focus for PE investment was the Food & Drink subsector, accounting for 23% of deals in 2021, up from 16% in the previous year.

Cross-border transactions dipped from 45% of deals in 2020 to 40% in 2021. Sales of UK targets to overseas buyers rose by 31% to 214 deals, with the United States and Canada accounting for 31% of transactions by buyers of UK manufacturers. Meanwhile, acquisitions of overseas targets by UK businesses declined by 4% to 101 deals.

Roger Buckley, UK Industrials M&A Partner at BDO, said: “Despite the considerable challenges facing the sector such as rising input prices, supply chain disruption and shortages of key components, deal activity remained strong last year as investors sought to back companies with the most promising innovations and the strongest growth potential.

“Set against a backdrop of skills shortages and wage inflation, we saw particularly strong interest in Industrial Automation, and we expect the high demand for investment in this sector to continue to fuel M&A activity this year.

“With the drive to Net Zero coming into sharper focus, we are also likely to see increased interest in innovation that can accelerate the commercialisation of low-carbon technologies, systems and business models.

“We are also seeing M&A activity influenced by a desire to improve supply chain resilience. Geopolitical tensions and the experience of the global pandemic have prompted many manufacturers to re-evaluate their ‘just in time’ processes, adopting resilience over efficiency, with increasing numbers deciding to ‘nearshore’ in order to help reduce the risks of disruption. Given recent events, we anticipate that this trend will continue into the coming year.”

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