Deal trends in industrial products: What’s ahead in M&A?

April 21, 2017

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By Robert McCutcheon

When looking at M&A trends over the first three months of the year, it’s clear that deals remain a key ingredient to corporate growth strategies. Industrial products companies engaged in 221 deals across the subsectors, including aerospace and defense, chemicals, engineering and construction, industrial manufacturing and metals.

While activity was down from last quarter, it was flat compared to the same period last year, putting us on track for a solid year of transactions. The good news is, industrial products companies are making significant investments in their businesses. They are using deals to fuel their strategies, strengthen their core competencies and propel them into a new digitized world.

M&A activity for industrials should remain robust in 2017, and may even accelerate given the indications of several policy initiatives on the horizon.

Here’s a subsector breakdown of our analysis for Q1 2017 M&A activity:

Aerospace & Defense

  • There were ten deals valued at $13.8 billion in Q1 2017 – a decline of 47% and 20%, respectively, when compared to the previous quarter.
  • Strategic investors continue to lead, accounting for 90% of transactions and 95% of deal value. However, external investments are expected to increase in the future due to mid-market consolidation.
  • Outlook: Despite a relatively soft start to the year, we are optimistic that deal activity will recover and return to prior year levels. Defense spending increases and geopolitical factors will certainly play a part in the prevalence and magnitude of deal making through the rest of 2017.

 Chemicals

  • There were 28 deals valued at $19.8 billion in Q1 2017, a decrease of 57% and 22%, respectively, from the previous quarter.
  • Megadeals accounted for 77% of total deal value ($15.3 billion), including seven deals valued at greater than $1 billion.
  • Outlook: With several industry-reshaping global megadeals pending in the chemicals space, outlook remains bright with opportunities likely to arise for both strategic buyers and private equity.

Engineering & Construction

  • There were 43 deals with a total value of $12 billion in Q1 – a decline of 54% and 48%, respectively, compared to the previous quarter.
  • Two megadeals were announced in the Engineering & Construction sector in Q1 17 with a total aggregate disclosed value of $4.8 billion. The civil engineering category had the largest share in both value and volume, with 47% and 35%, respectively.
  • Outlook: First quarter M&A activity decreased to $12 billion, the lowest in three years. While there are some seasonal influences on the first calendar year quarter in any year, the drop in Q1 17 was far more pronounced than in previous years, suggesting ongoing levels of heightened market uncertainty as well as tempered demand from Asia, and specifically Chinese investment.

Industrial Manufacturing

  • For the first quarter of 2017, there were 57 industrial manufacturing deals with a total value of $22.5 billion. This represents a 13% decline in deal value and 16% in deal volume compared to Q4 2016.
  • The rubber and plastic products category registered the highest growth over the previous quarter in both value and volume, driven by a $2.3 billion deal.
  • Outlook: In 2017, deal makers will be driven by their desire to differentiate their products and services through geographic and customer expansion, as well as furthering technology and digital integration.

 Metals

  • Q2 deal volume and value was 20 transactions worth $7 billion – down 35% and 62%, respectively, compared to Q4 2016.
  • After a year without activity, South America brought in two transactions in the steel category this quarter. Both transactions were driven by low profitability in the region.
  • Outlook: Potential policy changes, slow growth environment and drive to new markets and customers will lead metals M&A for the foreseeable future.

For more information on each sub-sector’s M&A analysis, visit: http://www.pwc.com/us/en/industrial-products/barometer-mergers-acquisitions.html

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

 

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