M&A sets stage for sweeping change

Hectic M&A activity in the industrial and manufacturing sector is both a catalyst for, and a response to, massive change. Emerging from the COVID-19 recession of 2020, IM companies have doubled down on the adoption of disruptive technologies, such as electric and autonomous vehicles.

M&A activity in IM soared to a new record of 10, 173 deals worth $806 billion in 2021, 88 percent higher in value than in 2020 and 77 percent more than 2019. Deal volume jumped 41 percent in 2021, and the average value of $79 million per deal in 2021 was 33 percent higher than in the previous year.

  • Supply chains have become huge bottlenecks, resulting in shortages of all kinds of materials and components. Such shortages have pushed up prices and are not expected to ease dramatically this year. Therefore, we anticipate a surge in M&A around component suppliers in 2022, especially in aerospace. Overall, Tier 1, 2 and 3 subsectors are likely to consolidate further.
  • The electrification of cars, and the resulting reduction in the number of components per car, will have a profound effect on automotive suppliers. Many may have to acquire or sell assets if they are to survive.
  • President Biden's infrastructure spending bill, passed in November 2021, will lift industries involved in roads, bridges, tunnels, and other infrastructure sectors. This will benefit construction, engineering, equipment, and automobile manufacturing, and is likely to speed up consolidation in their supply chains.
  • Portfolio optimizations will lead to further restructuring among manufacturers, especially for diversified industrials such as 3M and Berkshire Hathaway.
  • SPACs are favored by entrepreneurs as a fast way to go public in new emerging industries such as commercial space (Virgin Galactic). EVs (Lucid), and electric vertical takeoff and landing (eVTOL) aircraft (Joby and Archer).

Key statistics

Total value of IM M&A activity in 2021, 88 percent higher than 2020.

Change in average value of IM deal in 2021, at $79 million per deal.

IM properties acquired by SPCAs in 2021, double the number in 2020.

Increases in deal value of automotive transactions in 2021.

Looking ahead, IM deal makers will be closely observing the implications for M&A of the expected rise in interest rates and the trajectory of inflation. Supply-chain woes are not predicted to dissipate any time soon, and this will affect the timing and selection of M&A deals among suppliers.

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