Industrial Manufacturing M&A Update Q3 2008

Both the number and total value of M&A deals in industrial manufacturing slowed in the third quarter of 2008 according to a report released by PricewaterhouseCoopers on November 11th.

The number of deals with a value of at least $50 million announced in the first three quarters of 2008 (126) is on pace to equal the total number of transactions in 2006 (169), but will not likely match the total number of deals last year (207). 

Total deal value declined 60% through the first three quarters of 2008 from $88 billion through the first three quarters of last year to $35 billion, primarily as a result of a reduction in the number of large deals valued at over $1 billion.  The reduction in the number of large deals can be attributed to tight credit markets and a reduction in the number of active financial buyers.  Additionally, the average deal value also declined to $277 million through the first three quarters of 2008 compared to $425 million through the first three quarters of 2007 and $545 million through the first three quarters of 2006.

Industrial machinery led M&A deals in industrial manufacturing through the first three quarters of 2008 (42%), followed by electronic and electrical equipment (20%) and rubber and plastic products (15%). 

On a positive note for the owners of midsize private companies, the proportion of privately-owned companies being sold has continued to increase.  The sale of midsize private companies rose to 30% of all acquisitions in this sector compared to 27% and 23% in 2007 and 2006, respectively.  On the other side, public companies and subsidiaries of larger corporations led all deal targets exceeding $50 million (68%).

According to the report, “The global credit crisis and intensified recessionary concerns have taken a significant toll on both the pace and value of dealmaking in the industrial manufacturing industry.  Historically, deal activity relates to fluctuations in economic conditions.  Since the long-term drivers of M&A in this segment – such as globalization, consolidation and increased competition – are structural, and not cyclical, we expect that deal activity will increase upon improvements in economic growth expectations.  Until that point, economic anxiety could potentially lead to an increase in distressed deals, giving a counter-cyclical boost to short-term deal activity in the industrial manufacturing sector.”

Source: PricewaterhouseCoopers

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