NEW YORK– Merger and acquisition (M&A) activity in the industrial manufacturing sector increased in the second half of 2013, with a 20% uptick in activity in the final six months of the year compared to the first half, according to Assembling Value, an annual analysis of global deal activity in the industrial manufacturing industry by PwC US. Despite that increase, the full year 2013 finished with 152 announced transactions for a total value of $59.7 billion, compared to all of 2012, which recorded 165 deals worth $84.8 billion.
While 2013 as a whole marks the second consecutive annual decline, deal activity in the second half of the year increased with 83 deals worth $35.7 billion versus 69 deals for $24 billion in the first half. The fourth quarter of 2013 recorded 40 transactions worth $50 million or more, totaling $9.7 billion, compared to 44 deals worth $20.3 billion in the same period last year.
“Similar to what we saw in our latest Manufacturing Barometer, caution was the predominant theme for manufacturers on the M&A front in 2013 as management teams remained highly selective in evaluating and pursuing deals,” said Bobby Bono, U.S. industrial manufacturing leader for PwC. “Deal activity was principally driven by horizontal consolidation within industrial machinery, as well as divestitures and carve-outs of non-core businesses. As the overall economy continues to recover, we remain optimistic that more growth-driven acquisition activity will return to the mix, fueling a more active deal market in the year ahead.”
Industrial machinery targets were popular during 2013, and PwC notes that this is one of the more fragmented areas of the segment with attendant opportunities for consolidation. Energy end-market related deals were also of interest, and accounted for about one-fifth of transactions in 2013, as well as several mega deals (transactions valued at $1 billion or more).
Continuing its historical trend, local market deals remained the focus for industrial manufacturers, representing 65% of total deal activity in the fourth quarter of 2013, according to PwC. In particular, Asian acquirers aiming to improve industry competitiveness continued to focus on local market consolidation, accounting for 40% of total deal volume in the fourth quarter. Regionally, Asia and Oceania took the lead in deal activity from North America, which led on both a volume and value basis for 2012. Within Asia, China capped off a robust year and remained the most active nation recording 28 deals worth $4.5 billion and was also the only BRIC acquirer to record a deal in the fourth quarter this year.
“Selectivity on deals also extended to cross-border transactions and we expect that trend to continue in the near term as manufacturers look to understand new baseline growth rates in Asia and assess the long term implications on regional wage rates, elevated oil prices and the natural gas price disparity between the U.S. and Asia,” Bono stated.
While financial investors remained active in the fourth quarter of 2013, executing on a number of leveraged buyouts and announced debt restructurings, strategic investors continued to dominate deal activity. Strategic investment in the industrial manufacturing sector generated 80% of all transactions in the fourth quarter and 67% for all of 2013.
“We expect private equity to remain a major factor as elevated equity prices provide attractive exit points from investments made prior to and during the economic downturn and favorable debt markets create a robust deal making environment,” said Bono.