Manufacturing and industrials M&A activity set to increase
Almost three quarters of UK-listed manufacturing and industrial companies are expecting an increase in M&A activity over the next 12 months, and almost half have cited a rise in private equity activity as a primary driver for this increase.
This is according to Deloitte’s bi-annual Manufacturing and Industrials M&A Predictions report, where M&A chiefs gave their views on the current economic environment, deal drivers, valuations and key themes of successful deals. Companies surveyed have a combined market cap of nearly £300bn.
Ross James, UK corporate finance manufacturing industry leader at Deloitte, said: “While corporate sector fundamentals have been strong, economic uncertainty over the last few years has significantly dampened corporate risk appetite. However, since the start of the year, stronger economic growth forecasts across many western economies, particularly in the UK, have given a major boost to confidence and, as a result, interest in M&A activity. Our latest CFO survey suggests that risk appetite among UK CFOs rose to a six-and-a-half year high in the first quarter of 2014.”
Emerging markets were the most likely place for acquisitions, with two thirds considering potential acquisitions in these regions.
Ross continued: “A significant trend in this survey is the increase of private equity activity in the industry. Nearly 44% of M&A chiefs named this as a primary driver for mergers or acquisitions in the coming months, up 12% from our spring 2013 study. It is clear that CFOs’ increased confidence, coupled with the strong availability of debt, allows for more competition for the available assets, which could push valuations up.”
A similar number of responses (44%) also identified private equity-owned companies as a primary source of target businesses, up from 28% last autumn. Ross added: “The same private equity portfolios have been looking for exits in the market, so we could expect more assets to be available for sale.”
– The majority of respondents continue to anticipate an increase in M&A activity in the next 12 months, with 73% expecting more activity. This reflects the continued optimism for the sector’s financial prospects expressed by 63% of those surveyed.
– A significant majority (70%) of respondents continue to describe themselves as acquisitive. Since Deloitte’s autumn 2013 survey there has been a slight shift towards a focus on managing the existing portfolio of assets.
– The continuing theme around financing is one of an already strong market remaining strong in the coming year. Respondents do not expect the good availability of debt to change significantly over the next 12 months.
– While expectations of deal multiples are that they will increase slightly, the majority do not expect any significant change in the next 12 months.
Ross concluded: “Our manufacturing and industrial predictions mirror the trends we are seeing in M&A activity across industries. The start of 2014 has seen the much-anticipated return of strong activity. In just the first four months of this year, deals collectively worth $1.2tn have been announced globally. Deloitte’s latest M&A index forecasts that the strong resurgence will continue, and by the end of H1 we expect a 10% increase in global deal volumes compared to the same period last year.
“According to our conversations with M&A chiefs, we certainly expect this trend to be reflected in the manufacturing and industrials sector, and indeed a number of very large potential transactions have been announced in recent weeks. We also anticipate a focus on maximising the value of existing assets, either through divestments and portfolio rationalisation or expansion into adjacent products and services.”
