Focus on Manufacturing | Irwin Mitchell | Outlook for M&A Activity

The manufacturing sector continues to paint a mixed picture in terms of its current performance and its expectations for the future.

The latest IHS Markit Manufacturing Purchasing Managers Index (PMI) hit 55.1 in March, which marked a 13-month high and a significant improvement on February’s poor performance.

According to most analysts, this seemingly positive result should be attributed to a so-called ‘Brexit buffer’ – in other words, the effect of businesses increasing their inventories of purchases and finished goods in anticipation of the UK’s departure from the EU.

The same survey also revealed that nearly half of businesses in the sector were more optimistic about the future. To continue the theme of uncertainty, though, the CBI has reported that business optimism in the first quarter of 2019 was at its lowest since mid-2016, with exporters being particularly downbeat.

Brexit caution

Concerns over a disorderly exit from the EU are weighing on managers of many businesses, particularly exporters and those with substantial international inputs. We might expect, then, that the medium-term appetite for deals from UK trade buyers will be suppressed, with management likely to be focussed on operational matters.

However, the overall number of deals in the sector in the second half of 2018 was very slightly up on the same period in the previous year, with multiples also said to be edging higher.

The cheaper pound continues to generate interest from inbound acquirers. According to the latest data, there were 15 manufacturing deals in Q1 involving US buyers targeting UK businesses.

Sector opportunities

Although M&A activity on the whole is said to follow the business cycle, we might expect a level of defensive activity and distressed transactions in sectors which are suffering some of the worst headlines, such as automotive.

Even here, where the reductions in demand, the switch from diesel and the inherent supply chain worries are causing real concern, there’ll likely be opportunity for developers of new technologies and local suppliers to improve their fortunes, with attendant interest from investors and acquirers.

Food and drink is another sector which has seen a level of recent activity which perhaps might surprise some. According to the latest Experian MarketIQ data, there were approximately 40 deals in this area in the first quarter of 2019 alone. Brewers feature markedly, from Lion’s acquisition of Magic Rock Brewing to Asahi’s takeover of Fuller’s beer business.

Innovation and disruption

Across the manufacturing spectrum, the adoption and development of Industry 4.0 technologies can also be expected to lead to increased deal activity. Corporate buyers will be looking to enhance their technical capabilities, and private equity investors – who still have plenty of dry powder in reserve – will be looking to support innovators and disruptors.

We’re certainly seeing an increase in enquiries in this area at the moment, and the team expects that this will continue.

Despite very real concerns from many areas of UK manufacturing about the obstacles the sector will need to overcome, and a prevailing caution, change often leads to opportunity. With continuing low interest rates and availability of both debt and equity funding, we think mid-market M&A activity is likely to remain steady for the remainder of the year.

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Outlook for M&A Activity

Brexit caution

Sector opportunities

Innovation and disruption

Inside Edition 9

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Outlook for M&A Activity

Brexit caution

Sector opportunities

Innovation and disruption

Inside Edition 9

For general enquiries

About Irwin Mitchell

Contact Us

Get a call back