In the first quarter of 2014, the total value for merger and acquisition (M&A) activity in the industrial manufacturing sector surpassed both the previous quarter and the same time period in 2013, largely driven by the successful completion of several mega deals, or transactions worth more than $1 billion, according to PwC US. While the total number of deals dropped slightly from fourth quarter of 2013, activity was in line with the first quarter of last year.
The first quarter of 2014 recorded 33 transactions (with values of $50 million or more) in the industrial manufacturing sector for a total deal value of $14.7 billion compared to 40 deals in the fourth quarter of 2013 worth $9.8 billion. Deal activity was more in line with the first quarter of 2013, which similarly recorded 33 deals but only logged $11.3 billion in total value. The significant increase in value in the first quarter of 2014 stemmed from four mega deals totaling $9.1 billion or 62 percent of total value. Mega deal activity drove an increase in average deal value to $447 million compared to $245 million in the fourth quarter of 2013 and $343 million on a year-over-year basis.
Sixty-seven percent of overall deal activity and all emerging market acquisitions valued at $50 million or more were local transactions in the first quarter. This has been a growing trend over the last several years as local market deals hit the highest level of activity since the first quarter of 2010.
“We saw a solid start to the year in terms of M&A activity and value in the industrial manufacturing sector,” said Bobby Bono, U.S. industrial manufacturing leader for PwC. “Dealmakers primarily focused on local deals in the first quarter as they looked to mitigate cross border risks by targeting domestic deals to more easily achieve synergies and expand local market share. In addition, manufacturers are aiming to offset lackluster demand across select verticals and subdued growth in certain regions in the year ahead and are consolidating their core operations, engaging in bolt-on acquisitions and carving out non-core businesses.”
Horizontal consolidation and divestitures of non-strategic assets continue to drive transaction activity in the industrial manufacturing industry as companies in the space stay focused on opportunities to strengthen their core businesses and align their portfolios toward faster growing markets. In the first quarter of 2014, divestitures accounted for 26 percent of all transactions, in line with the historical trend. In addition, PwC’s recent Manufacturing Barometer, a quarterly survey based on interviews with 61 senior executives of large, multinational U.S. industrial manufacturing companies, found that of the respondents planning to engage in M&A activity in the year ahead, a majority were focused on purchasing another business followed by the sale of part/all of their own business or a spin-off.
According to PwC, strategic investors remained the dominant drivers of volume in the first quarter, accounting for 82 percent of total deal activity. However, both strategic and financial investor activity during the quarter was prompted by manufacturers looking to align with faster growing segments such as oil, gas and petrochemicals. In fact, the share of targets involved in the energy business in the first quarter of 2014 was among the highest in the past 10 years.
On a regional basis, Asia and Oceania acquirers once again took the lead, recording 55 percent of total deal volume and 38 percent of total value. Within the region, China was the most active target for M&A, completing 11 of the region’s 18 deals worth $50 million or more, and continued its recent trend as the only BRIC nation to record a deal in the quarter. Following Asia and Oceania, North America was the next most active region, with the United States accounting for all eight of the deals in the quarter.