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Strategic investments focused on companies with strong R&D, innovative products, and industrial value-added services will dominate M&A activity in 2024.
In the industrial manufacturing and automotive (IM&A) sectors, portfolio optimisation and acquiring technological and green capabilities will drive dealmaking in 2024. CEOs are prioritising strategic growth by divesting non-core assets and reallocating resources to more profitable areas. This trend is expected to lead to a consolidation of smaller companies, providing acquisition opportunities that align with strategic objectives and promote long-term value creation. And what about developments in Switzerland?
In 2023, deal volumes and values in the IM&A sectors declined, impacted by challenging economic and geopolitical factors. Mid-market deals remained stable, but tighter financing conditions affected larger transactions. M&A activity is expected to pick up in 2024, driven by an improving economic environment with lower inflation and interest rates, as well as the strategic acquisition of technological assets such as AI, automation, and digital transformation. Companies are looking to improve their competitiveness and market position through targeted acquisitions, particularly of companies with strong R&D capabilities or innovative products, in order to navigate or lead market disruptions.
A cautious but optimistic outlook is underpinning dealmaking, with particular momentum in the US due to expected interest rate cuts. However, in Europe and other regions, ongoing uncertainties may affect deal valuations and timelines, with regulatory challenges playing a role as well. Portfolio optimisation remains a priority, pushing companies to divest non-core assets to focus on strategic growth areas.
Although they need to recalibrate their return model due to increased financing costs, private equity will continue to play an active role in industrial M&A, willing to deploy significant capital reserves through alternative financing and structuring options to overcome valuation and financing hurdles. Combined with industry consolidation and corporates streamlining their portfolios, we expect this to drive increased deal activity in the IM&A sectors.
Industrial manufacturing and automotive M&A 2024 hot spots
Technology
Companies are prioritising investment in cutting-edge technologies to secure a sustainable advantage over their competitors. This focus on technological innovation is expected to drive M&A activity across the IM&A sectors in the near term and beyond, particularly in areas such as electric vehicle battery and charging solutions, the cloud, and automation and robotics.
Artificial intelligence (AI)
Artificial intelligence is set to have a major impact on the industrial sector’s dealmaking landscape, as companies look to make AI-enabled acquisitions to open up new revenue streams. According to PwC’s 27th Global Annual CEO Survey, 64% of IM&A CEOs expect generative AI to transform their business operations and value creation within the next three years. IM&A firms looking to embrace AI innovation must decide whether they want to develop these capabilities in-house or through acquisitions.
Supply chains
Supply chain resilience is increasingly important in today’s uncertain world of geopolitical tensions and economic pressures. Companies are reassessing their global supply chains, considering the risks and potential for shifts towards nearshoring. This review may drive M&A activity, along with other strategies such as joint ventures, partnerships, and private investment, as companies seek to secure and improve their supply chain.
Sustainability
Sustainability is at the forefront of M&A strategies as companies strive to meet environmental, social and governance (ESG) goals amid stricter regulation and new demands from businesses, consumers, and investors. Buyers in the IM&A sector are targeting firms that offer products and solutions which support the pursuit of sustainability and net-zero goals. Companies with a focus on decarbonisation, renewable energy, and the electrification of industrial equipment will be particularly sought after.
“IM&A transaction activity is expected to increase after a lighter second half of 2023, as dealmakers balance innovation and strategic goals with current market realities and global uncertainties. This, along with divestments from portfolio reviews, will drive transformation and growth.”
Michael HuberDirector, Deals Industrial, Manufacturing & Automotive, PwC SwitzerlandGlobal M&A trends in industrial manufacturing and automotive
Industrial manufacturing and automotive deal volumes and values, 2019-2023
Sources: LSEG and PwC analysis
Between 2022 and 2023, IM&A saw a 3% drop in deal volumes and a 24% fall in values, impacted by challenging economic and geopolitical conditions. Mid-market deals stayed stable, but large transactions dried up due to financing difficulties. Sector-wise, aerospace and defence M&A grew by 13%, while automotive, business services, and manufacturing remained steady, and engineering and construction saw an 11% decline, reflecting a heightened need for security in an instable geopolitical environment.
M&A trends in the Swiss industrial manufacturing and automotive sector
Although the general macroeconomic environment in Switzerland is resilient, the highly export-oriented IM&A sector is facing challenges due to a reduced demand for capital goods in key sales markets such as Germany and the appreciating Swiss franc, which is putting additional pressure on margins. With some first industrial players now ending short-time work due to early signs of recovery, flattening interest rates, and falling inflation, we expect market participants to regain confidence and resume M&A activity in the course of 2024. Overall, the Swiss IM&A sector remains an attractive playing field for many investors.
With their involvement in more than half of the deals in 2023, financial sponsors remain a driving force for M&A in the IM&A industry in Switzerland. However, in the second half of 2023 we saw a significant shift towards corporate buyers. The next few quarters will show if this is a flash in the pan or if corporates are now taking advantage of the fact that PE buyers need to recalibrate their return models after more than a decade of record-low financing costs.
Similar to the global picture, growth is slowing down in all IM&A sectors except for aerospace, defence and security, where growth is accelerating, reflecting the current geopolitical situation and heightened need for security.
Last but not least, valuation multiples are currently below the five-year average in all IM&A sectors, reflecting a higher level of uncertainty and tougher financing conditions. It’s the bold who are taking advantage of attractive valuations now, but keep an eye on the risks.
“Although the general macroeconomic environment in Switzerland is resilient, the highly export-oriented IM&A sector is facing challenges due to a reduced demand for capital goods in key sales markets such as Germany and the appreciating Swiss franc, which is putting additional pressure on margins. However, the Swiss IM&A sector remains an attractive playing field for many investors.”
Michael HuberDirector, Deals Industrial, Manufacturing & Automotive, PwC Switzerland2024 M&A outlook for industrial manufacturing and automotive
Strategic investments, particularly in innovative technologies and electric mobility, coupled with portfolio reviews and divestitures will drive M&A activity in 2024. Due to ongoing capital constraints and higher financing costs, companies may prioritise divesting non-core assets to free up capital for investment opportunities and smaller deals. There will be a focus on securing supply chains, sustainability issues and, as an alternative to acquisitions, entering into joint ventures and strategic alliances to gain the necessary technological capabilities
M&A industry trends in Switzerland
Learn about the key trends driving M&A activity in Switzerland
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