Manufacturing mergers and acquisitions increase despite economic obstacles
Manufacturing mergers and acquisitions (M&A) in the UK have seen a resurgence despite economic challenges in recent years. According to BDO’s Manufacturing Deals Review, the sector experienced an 11% increase in M&A activity in 2024, surpassing levels last seen in 2022. The report highlighted that 782 UK manufacturing deals were finalized in 2024, up from 707 deals in 2023.
The analysis noted that the first half of 2024 experienced a slowdown in deal activity due to uncertainties surrounding an election year. However, momentum picked up in the latter half of the year following the Autumn Budget, resulting in a total of 475 completed deals. The driving forces behind this uptick included an urgency to finalize deals before anticipated changes to Capital Gains Tax and Business Asset Disposal Relief.
The manufacturing sector’s resurgence in M&A activity was also fueled by major infrastructural projects, such as the UK government’s initiative to expedite data center development nationwide. This led to a surge in demand from those looking to divest their assets. Among the subsectors, engineering services saw a 26% increase in deal activity, accounting for almost a third (32%) of all completed transactions. Following closely were businesses in the packaging & materials sector, which experienced an 18% rise in deal volumes, representing 11% of all completed transactions.
While the positive trend in M&A activity is a welcome development for the sector, challenges persist. Rising costs, labor shortages, and geopolitical tensions continue to pose threats to manufacturing businesses. In response to these challenges, a study by BDO and Make UK revealed that 26% of UK manufacturing businesses are contemplating selling all or parts of their businesses within the next two years.
Roger Buckley, UK industrials M&A partner at BDO, acknowledged the busy year for manufacturing deals in 2024 but highlighted that upcoming policy changes are dampening business confidence, recruitment plans, and growth intentions. He emphasized the importance of the forthcoming Industrial Strategy in boosting sentiment within the sector.
Looking ahead to 2025, Buckley expressed optimism for sustained M&A activity and stable valuations. He noted that cash-rich investors remain interested in the sector’s long-term prospects and growth opportunities. However, to capitalize on this interest, businesses will require government incentives to support investments in new technologies and domestic operations.
In conclusion, the rebound in manufacturing M&A activity in the UK is a positive sign for the sector, despite ongoing economic challenges. While businesses are navigating uncertainties and policy changes, the outlook for 2025 remains positive, with opportunities for growth and strategic investments.