Unlocking Growth: Key Market Trends Shaping SME Mergers and Acquisitions in the Manufacturing Sector
A recent study by PWC found that more than half of UK business leaders are considering merger and acquisition transactions to keep pace with change and challenges in their markets. This is welcome news after a year of fluctuation and uncertainty. The UK manufacturing industry is particularly active, Make UK reports that firms are investing more this year compared to 2023, with £38.8bn worth of investment taking place.
In this article we look at the market trends affecting the manufacturing sector, specific factors driving the uptick and why manufacturing business owners should consider embracing M&A strategies for sustained growth.
Increased Consolidation
There has been a notable trend towards consolidation in the manufacturing sector. Smaller companies are increasingly being acquired by larger firms to increase market share, diversify product offerings, and achieve economies of scale. This helps businesses strengthen their competitive position in a challenging market.
Digital Transformation
Companies are seeking to acquire businesses with advanced digital capabilities, such as automation, data analytics, and IoT (Internet of Things) technologies. This trend is partly fuelled by the need to enhance operational efficiency and meet the growing demand for smart manufacturing solutions.
Sustainability and Green Manufacturing
Environmental, social, and governance (ESG) considerations are crucial in this industry. With a growing emphasis on sustainability, businesses looking to acquire companies that have strong green credentials and sustainable processes to alleviate regulatory pressures and meet increasing consumer demand for environmentally friendly products.
Supply Chain Resilience
The COVID-19 pandemic highlighted the vulnerabilities in global supply chains. As a result, many manufacturing companies are pursuing acquisitions to strengthen their supply chains and reduce dependency on single-source suppliers. This trend aims to enhance supply chain resilience and ensure continuity in the face of potential disruptions.
Sector-Specific Growth
Certain subsectors within the manufacturing industry, such as pharmaceuticals, medical devices, and high-tech engineering, have been noticeably more active in M&A transactions. These sectors have demonstrated strong growth potential and resilience, attracting significant investment and consolidation efforts.
Private Equity Involvement
Private equity (PE) firms are increasingly active in the manufacturing sector. They are attracted by the potential for high returns and the opportunity to drive growth through strategic investments. PE firms often target well-established SMEs with solid growth prospects, providing them with the necessary capital and expertise to scale operations.
Cross-Border Transactions
Despite Brexit, cross-border M&A activity remains significant. UK manufacturers are both attractive targets and strong acquirers in international deals. This trend is driven by the desire to access new markets, acquire advanced technologies, and diversify business operations geographically.
Valuation and Deal Structuring
Valuations in the manufacturing sector have generally remained robust, driven by strong demand for high-quality assets. However, deal structuring has become more innovative, with earn-outs, deferred payments, and performance-linked incentives becoming more common to bridge valuation gaps and align interests.
Government Support and Incentives
Many businesses have taken advantage of previous Government initiatives and incentives, such as the UK Industrial Strategy and various tax relief schemes. These policies aim to boost investment in manufacturing, support innovation, and promote economic growth. The new Labour government have made clear commitments to increasing the support for manufacturing growth in the UK and it is likely that new initiatives will be introduced.
Specialist Advice
Whether you’re in the early stages of a business growth plan or have decided now is the time to sell your business, talking to a specialist advisor can help you fully prepare and take advantage of the best opportunities. Contact Partner Geoff Pinder (07717 874357) for a confidential discussion.