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Signs of Growth? Global Manufacturing M&A Activity Rebounds

Posted By Paul Tate, November 15, 2012 at 6:37 AM, in Category: The Adaptive Organization

Rising merger and acquisition (M&A) activity is one of the key industrial indicators that the world’s manufacturing sector is gearing up for growth, so it’s good news that the latest industry figures show manufacturing sector M&A activity soared to $25 billion in the third quarter of 2012.

This is the highest total M&A transaction value for the industrial manufacturing sector for the last four years. This fresh flurry in M&A activity is up 32% from the $19 billion in the second quarter of this year, and a substantial 150% from the $10 billion in the third quarter last year.

According to recent analysis in PwC’s quarterly M&A report, Assembling Value,  the number of large-scale manufacturing M&A deals was also on the rise. The report notes that there were 43 transactions worth over $50 million in the last quarter, up from 32 in the previous three months. There were also six ‘megadeals’ of over $1 billion announced over the same period – all driven by United States-based acquirers.

The report also reveals that divestitures played a significant role in this new surge of deal-making, reflecting many companies’ continuing efforts to right-size their operations, exit slower growth or more cyclical markets, or move manufacturing closer to their customers.

The global nature of these deals is also changing. The majority of M&A deals in the first half of the year were local transactions in developed nations, especially in the U.S.. But by contrast, third quarter activity was dominated by cross-border transactions. North America continued to be one of the most active regions, but Asia and Oceania led most of the activity in terms of both targets and acquirers.

Europe also remained fairly active in the third quarter, with a larger percentage of transactions over $50 million involving either inbound or outbound deals, perhaps reflecting relatively low-cost purchasing opportunities in the economically-challenged EU region.

Deal-making activity in the BRIC countries also made a significant comeback after a quiet first half of the year, notes PwC, with China, India, and the Russian Federation all recording significant transactions in the third quarter.

In terms of key manufacturing sector targets, industrial machinery companies dominated the overall deal activity in the quarter, accounting for 42 per cent of total deals over $50 million. The fabricated metal products and electronic equipment sectors also showed strong M&A activity.

“Solid growth in the energy, oil and gas, and green technology sectors, has also stimulated M&A activity in the industrial manufacturing sector, a trend that was evident across all ranges of transactions,” commented Bobby Bono, U.S. industrial manufacturing leader for PwC.

The question is, will this level of M&A activity continue into 2013?

PwC’s Bono is not so sure: “While future industrial manufacturing transaction activity appears promising, a number of macro-economic concerns may curtail near-term activity," he said, "including the potential for further economic deterioration, lower levels of new orders and revenues, and a lack of confidence in the direction of global commerce.”

What’s your view? Do you expect the recent surge in M&A activity to continue over the months ahead as an increasing number of the world’s manufacturing companies divest themselves of non-critical operations and seek more cross-border partnerships to help them expand their global reach?

Written by Paul Tate

Paul Tate is Research Director and Executive Editor with Frost & Sullivan's Manufacturing Leadership Council. He also directs the Manufacturing Leadership Council's Board of Governors, the Council's annual Critical Issues Agenda, and the Manufacturing Leadership Research Panel. Follow us on Twitter: @MfgExecutive


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