Portfolio coherence top of mind for industrial products companies

October 27, 2016

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By Robert McCutcheon, Partner, US Industrial Products Leader, PwC

Today’s low growth macroeconomic environment is making it difficult for companies to find growth, to the extent that companies are tending to grow inorganically. That in turn is driving M&A activity across the industries. Companies are shifting their portfolio, rationalizing and getting back to the core of their business and shedding some of the lower performers.

We saw this trend play out across the industrial products sectors including aerospace & defense (A&D), chemicals, engineering and construction, industrial manufacturing, metals, and transportation and logistics.

Here’s a sub-sector breakdown of #PwCDeals Q3 M&A activity:

Aerospace & Defense

  • There were 11 deals valued at $6.1 billion in Q3 2016 – an increase of 38 percent in volume and an increase of 4 percent in value when compared to the previous quarter.
  • The Aircraft & Parts category continues to drive deal activity with three deals in Q3, indicating a strong bounce back from last quarter.
  • Outlook: Growth is on the horizon and, as uncertainty eases, strong balance sheets will facilitate a recovery in activity for the A&D sector.

Chemicals

  • Global Chemicals M&A deal volume experienced a 47 percent pullback in Q3 – 23 deals with a total value of $18.9 billion.
  • Two largest transactions in Q3 2016 fell under the Fertilizers, Agricultural, and Specialty Chemicals categories, indicating that the industry is continuing to look for opportunities outside of commoditized products.
  • Outlook: With the rise of potential assets to be divested coming out of the megadeals in the Fertilizers and Agricultural Chemicals sector, we expect to see stronger middle market and private equity deal activity in the coming quarters.

Engineering & Construction

  • Deal value in the sector increased by 13 percent to $25.4 billion in Q3 compared to last quarter, despite a modest decline in deal volume with a total of 66 deals.
  • Construction Materials Manufacturing contributed to the largest share in terms of both value and volume in Q3 2016 – 34 percent and 39 percent, respectively.
  • Outlook: Continued high levels of liquidity on balance sheets to fuel non-organic growth opportunities will influence M&A activity, and continued strength in the U.S. economy will create opportunities for both domestic and inbound transactions.

Industrial Manufacturing

  • For the first time this year, Q3 2016 saw an increase in deal value and deal volume compared to the previous quarter – 58 deals vs 49 deals and $20.3 billion vs $12 billion.
  • Financial investor participation rates in Q3 decreased to levels not seen since late 2013.
  • Outlook: The improvement in deal activity in Q3 may be a sign that deal makers’ economic and geopolitical concerns, both in the US and globally, have begun to subside.

Metals

  • The Metals sector saw a 143 percent increase in deal value in Q3 with $11.1 billion compared to the previous quarter.
  • Steel category had the strongest deal activity in Q3, with a total of nine deals worth $5.7 billion – the deal value for this category increased by 230 percent compared to Q2.
  • Outlook: Growth in key sectors such as Infrastructure and Construction, Oil & Gas, Automotive and Aerospace may spark metals M&A activity.

Transportation & Logistics

  • M&A activity remains strong with respect to deal volume and value, recording 50 deals with a total transaction value of $26 in Q3.
  • The Shipping category saw a surge in deal value in Q3 with its $7.3 billion deal, the largest megadeal in the sector this quarter.
  • Outlook: A drive to globalization, corporate outsourcing of the logistics function and the continued global growth in e-commerce will continue to drive growth and associated M&A activity.

You can also follow PwC’s M&A analysis across all industries by following the conversation on Twitter using #PwCDeals.

 

©2016 PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.  This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

 

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