Megadeals Making a Comeback in the Industrial Manufacturing Sector?

July 26, 2018

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By Paul Elie and Bobby Bono

The industrial manufacturing sector saw its first megadeal (transactions worth more than $5 billion) in six quarters, disclosing a value of $11.1 billion in the second quarter of 2018. Here’s a quick snapshot of Q2 deal activity in the industrial manufacturing sector:

  • Deal value increased 68% from the first quarter of 2018, with a total of $36.7 billion in the second quarter
  • Deal volume decreased 15% to 545 deals in the second quarter from the previous quarter
  • Average deal size jumped 83% to $148 million from the first quarter

Driven by the megadeal, deal value for the industrial machinery category increased to $19.8 billion in the second quarter, followed by the electronic and electrical equipment category. As demand for digital products continues to rise, M&A deal value in these two categories will likely remain strong in following quarters for the industrial manufacturing sector.

Growth in industrial manufacturing M&A in the first half of 2018 has been fueled by US investors who were on the acquiring end of six of the top 10 deals. During the second quarter of 2018, strategic investors continued to account for the largest share of deal activity with 70% in value and 61% of volume in the sector. The combination of large corporations rationalizing portfolios, financial buyers looking to deploy capital, strategic investors with continued interest in JV transactions, and the influence of US tax reform has created an exceptional environment for M&A activity.

Although the North America region contributed to the largest share of deal value year to date, we saw a significant pullback in deal volume in the region during the second quarter, likely due to escalating risk and uncertainty around global trade. Asia and Oceania remained the most active in deal volume across the sector year to date.

Despite the concerns over a global trade war, we still believe there are positive signs in the M&A market that will continue to foster a healthy deal-making environment for the remainder of 2018, which is why deal makers should continue to be bullish. There were numerous large industrials announcements made on strategic realignment of their portfolios in prior quarters and we’re starting to see those assets make their way to the market. Lower tax cost to divest will also likely increase the supply of assets for sale in the market. In addition, the increasing pace of technological change and continued need for industrial manufacturing companies to innovate and digitize to remain relevant and competitive will continue to drive M&A activity as a strategic enabler.

View the full Q2 2018 Industrial Manufacturing deals report.

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