Renewed optimism is spurring greater confidence in investment strategies. Companies are reviewing their portfolios to focus on new growth areas and shedding non-core assets to capitalise on healthy valuations. The most value is still coming from capabilities-driven acquisitions, as well as from M&A geared to product and platform expansion. This upbeat mood prevails despite various macroeconomic and other headwinds, including the Ukraine conflict, Covid-19 variants, supply chain bottlenecks, commodity price increases and a global semiconductor shortage, especially in the automotive sector.
Key themes driving M&A:
Digitalisation
Covid-19 has accelerated the need for digitalisation to enable companies to maximise their operational efficiency and harness opportunities for new business models and revenue streams. A good example of this is the growing use of software and sensors, which have created opportunities for recurring revenues from ongoing maintenance services and data analytics subscriptions.
Commodity prices
The prices of commodities have bounced back in recent months. This has prompted business leaders to revisit their sourcing and pricing strategies and closely monitor tell-tale signs of inflation. The powerful rebound in industrial activity is leading to a shortage economy. This is having an immediate impact on the availability of raw materials and semifinished products, increases in transportation costs and delivery delays, which is disrupting almost all supply chains.
Capital availability
Private equity (PE) is still on the lookout for investment opportunities, family offices are the source of growing volumes of capital, and SPACs generated some of the biggest deals in the industry last year. While there was a slowing in SPAC activity towards the end of 2021, it will continue to have an impact this year, especially in the automotive sub-sector.
Environmental, social and governance (ESG)
From energy storage and use, production processes, sustainable transport, supply chain resiliency, health and safety to cultural issues and diversity and inclusion, aspects of the ESG agenda have a bearing on most areas of the IM&A industry. Companies are having to use innovative technologies to deliver on their ESG promises and stay abreast of industry regulations. With ESG impacting institutional investors’ decision as to where to allocate funds and forcing corporates to offload “uncomfortable” businesses, it has already become one of the main drivers of M&A.
Industrial manufacturing and automotive deal volumes and values
Industrial manufacturing and automotive sectors deal volumes and values, 2019-2021
Europe, the Middle East and Africa (EMEA) had the most deals in 2021, with almost 5,000 for the year, 42% higher than in 2020. A notable development is the greater role played by private equity (PE). With buyout firms sitting on a record level of dry powder, they find themselves in fierce competition to deploy their cash. Moreover, recent supply chain disruptions and fears of an intensifying trade war are causing many European OEMs to onshore their supplier base, making European industrial suppliers attractive takeover targets again.
What are the M&A trends in the Swiss industrial manufacturing and automotive sector?
M&A activity in the Swiss industrial manufacturing and automotive sector has recently been driven by ongoing portfolio reviews of corporates. Examples are ABB’s divestment of its Mechanical Power Transmission division, Schaffner Group’s sale of its Power Magnetics division and several smaller non-core disposals carried out by RUAG. While many Swiss corporates are still sitting on record-high cash piles, they fear overpaying in the current environment where PE investors and wealthy family offices are prepared to pay strategic premiums for the “right” assets. With the baby boomer generation nearing retirement and many business owners redefining their personal priorities post Covid-19, we expect M&A activity in the mid-market segment of the industrial manufacturing and automotive sector to accelerate, making it an attractive playing field for PE funds looking to acquire high-quality businesses which they can further professionalise and support on their growth trajectory.
“Recent supply chain disruptions and fears of an intensifying trade war are causing many European OEMs to onshore their supplier base, making European industrial suppliers attractive takeover targets again.”
Looking ahead: robust dealmaking ahead, but smart value creation plans required
The prospects for M&A this year are good. Businesses in many industrial manufacturing and automotive sectors have turned the corner, and cautious optimism about global economic growth should prompt strong dealmaking activity all over the world. The most attractive assets will be those focused on technology and ESG, with intense competition and high multiples valuation from corporates and private equity firms. Business leaders will need to have accelerated value creation plans in place to justify these higher valuations and make sure deals do actually boost earnings.
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