On the edge of an upturn: Q1’23 M&A trends in industrial manufacturing

The continued downward trend in industrial manufacturing (IM) deal volume and value in Q1 2023 reflects the underlying economic conditions, with interest rates remaining high and inflation falling but still elevated. Compared to the last quarter of 2022, total mergers and acquisitions (M&A) volume dropped by 25 percent, and value cratered by a massive 62 percent.

Amid concerns over the ability to forecast long-term earnings and cost of debt, financial buyers retreated, with private equity (PE) responsible for just 36 percent of deals and 20 percent of deal value.

All primary subsectors experienced a decline in volume, with transportation and logistics (T&L) the hardest hit–down by 47 percent from Q4 2022. And in terms of value, the drop was even steeper. The single biggest transaction was Apollo’s $8.1 billion capture of Univar Solutions, while the largest corporate deal saw National Instruments snapped up by Emerson Electric for $7.6 billion.

Given the current market volatility, investors are holding back from committing to transactions. However, there is plenty of sell-side preparation in anticipation of an upturn, with many companies eager to divest nonstrategic assets.

We can hopefully expect an explosion of deals once conditions become more favorable in the second half of the year, driven by the following trends:

• A swelling pipeline of sellers, along with dry PE powder
• Rising sell-side activity by PE firms looking to monetize investments held well beyond their typical holding periods
• Carve-outs by corporates reshaping their portfolios as they exit non-core capabilities
• A strong cash position of strategic buyers, along with uninvested capital and growth in the PE sector–all of which ramps up the buy-side pressure

With buyer and seller value expectation gaps persisting, the current environment favors the patient buyer versus the anxious seller.

Read the full report here.