By Robert McCutcheon, Partner, US Industrial Products Sector Leader
Our third quarter report on M&A activity for global industrial products (IP) companies shows a 23% increase in value and a slight decrease in volume from the prior quarter. While there are ongoing concerns about the global economy, particularly the Eurozone, balance sheets are strong and companies are continuing to evaluate M&A opportunities.
The volume of mega deals (value exceeding $1 billion) remains at low levels. Investors appear to be choosing small and middle market transactions in their domestic market. Cross-border deal activity accounted for only 37 percent of total deal volume.
Most of the deal activity was driven by strategic investors, reflecting a focus on longer-term investment opportunities. Financial investors, on the other hand, seem to be staying on the sidelines and accounted for only about a quarter of deal activity value.
Looking at regional differences, Asia and Oceania led in deal volume, followed by North America. In both areas, as well as in the Eurozone, the majority of deals were local in nature, reflecting uncertainty about economic conditions in other areas of the world. It’s clear from our latest Manufacturing Barometer that executives in the US are relatively optimistic about their own economy, in part a result of the positive impact of increased shale oil and gas production.
Looking ahead to the fourth quarter, we do not anticipate a major uptick in M&A activity. US growth has been negatively impacted by the recent partial government shutdown and the Eurozone is unlikely to emerge from the doldrums anytime soon.
Nevertheless, we see some positive signs emerging, particularly for IP companies. Some governments, particularly in developing markets, are looking to rebuild and stimulate their local economies. These efforts will result in new deal opportunities for IP companies looking to play key roles in rebuilding infrastructures.