Industrial Manufacturing M&A Value Sets Historic High in 2014, According to PwC US
Following a strong fourth quarter, the industrial manufacturing industry closed out a stellar year for merger and acquisition (M&A) activity, according to Assembling Value, a quarterly analysis of global deal activity in the industrial manufacturing industry by PwC US. Total deal value (for transactions worth more than $50 million) soared in 2014, reaching $127 billion, an increase of 163 percent over the prior year and surpassing the 10-year high of $92.4 set in 2006.
There were 213 industrial manufacturing deals (worth more than $50 million) recorded in 2014 for a total of $127 billion compared to 148 deals worth $48.3 billion in 2013. Both deal value and volume spiked drastically in the fourth quarter of 2014, recording 56 deals worth $24.1 billion compared to 38 deals totaling $9.6 billion in the same period the previous year. Megadeals worth more than $1 billion were also in abundance in 2014 with 24 announced transactions worth $91.6 billion.
“The strong momentum for manufacturing deals in 2014 carried into the fourth quarter as horizontal consolidation and divestitures of non-core business continued to drive robust activity,”said Bobby Bono, U.S. industrial manufacturing leader for PwC. “Companies are monetizing non-core or underperforming assets, leveraging scale in core businesses and considering joint ventures and new strategic alliances to expand into long-term attractive markets, particularly in developing economies with a growing middle class. In addition, management’s attention has shifted away from headcount reduction and cost-cutting programs toward growth initiatives and filling the talent gaps.”
Manufacturers continue to struggle to find and retain talented workforce and a skilled labor portfolio is becoming a more important factor in evaluating potential M&A targets. Sixty-four percent of respondents to PwC’s Q4 Manufacturing Barometer cited a need to fill skill gaps in their businesses over the next 12-24 months and over the past year, two-thirds also reported having open positions that they were unable to fill with experienced or skilled employees. In order to begin filling the gap, 78 percent of respondents plan to hire new skill function employees over the next 12-24 months with the broadest needs in engineering/design (62 percent), manufacturing (44 percent) and R&D (28 percent).
Regionally, acquirers from Asia led the way in terms of volume in 2014, accounting for 107 of the 213 deals; however, inbound activity in the region remained subdued. China was the most active acquirer nation, accounting for 35 percent of all deals during the year. While emerging market activity boomed in the fourth quarter, local market deals remained dominant and no cross-border activity was generated from Asia. Europe, on the other hand, saw a significant amount of local, inbound and outbound activity despite continued economic malaise in the region. Local and foreign buyers continue to scour the region for high quality businesses as they look to align their business portfolio with long-term attractive markets.
“China-involved deals in 2014 exceeded any year of the past 10; however, foreign buyers have become increasingly wary due to an oversupply of capacity, materials and debt in the region and local market consolidation. Given a perceived lack of innovation, inability to move up the value chain and cooling domestic markets, we expect Asian manufacturing companies to begin looking for opportunities in established markets in 2015,” said Bono.
According to PwC, strategic as well as financial investors continued to pursue high-quality industrial assets and were more willing to acquire companies with stable growth prospects, even at a higher valuation. In the fourth quarter of 2014, financial investors accounted for 36 percent of all deals.
“We expect market expansion, access to next wave technologies, and the compelling need to generate synergies to drive manufacturing M&A activity, particularly in established markets. The potential impact of the first round of regulatory tightening on U.S. economic activity along with the talent crunch will be key areas of focus for management but companies with healthy balance sheets and favorable access to financing will have a clear opportunity in 2015,” Bono concluded.
For information on Assembling Value and to access the full Q4 2014 report, please visit:
www.pwc.com/us/industrialproducts
PwC’s industrial manufacturing M&A analysis is a quarterly report of announced global transactions with value greater than $50 million analyzed by PwC using transaction data from Thomson Reuters.
For more information on PwC’s Deals practice, please visit:
www.pwc.com/us/deals
For more information on PwC’s Industrial Products practice, please visit:
www.pwc.com/us/en/industrial-products
About PwC US:
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