What Trends Will Have the Biggest Impact on Manufacturing Mergers and Acquisitions?

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At the beginning of 2020, production activity was at its lowest level in ten years. Then the COVID-19 pandemic caused further shocks to the strained labor market and lowered consumer demand – which made the future of the industry uncertain.

A recovery from the pandemic is now in sight. In December 2020, industrial activity in the US manufacturing sector rose to a two and a half year high. Businesses across the economy are preparing for economic recovery.

Investors in the manufacturing industry are looking for ways to invest in the industry, as well as manufacturing companies and niches that are likely to thrive after COVID-19 so they can increase their investments.

Uneven growth and the demand for innovative manufacturing techniques are likely to affect the future of the industry. These are the market trends that are most likely to affect mergers and acquisitions in the manufacturing sector over the next few years.

1. SPAC IPOs encourage industrial mergers and acquisitions

The analyst Sanghamitra Saha wrote for the investment firm Zacks and named 2020 “the year of the SPAC IPOs” in an article published on the NASDAQ website.

Special Purpose Acquisition Companies (SPACs), also known as blank checks, are companies in the development phase that do not have a specific business plan. They were created specifically to raise capital through an IPO that will be used to acquire an existing business. In 2020, SPACs raised more than $ 79 billion – up from a record $ 19 billion in 2019.

In manufacturing, a number of SPACs have targeted or partnered with companies that make innovative products. Significant mergers and acquisitions included the merger of Janus, a manufacturer of internet-connected doors and gates, with Juniper Industrial Holdings, and a number of battery companies that primarily manufacture lithium-ion batteries for electric vehicles.

SPACs usually have the greatest impact on new companies in the development phase. These SPACs could offer great opportunities for companies making cutting-edge or innovative technologies such as smart gates and EV batteries, but have limited access to capital.

2. Innovation inspires mergers and acquisitions

Industry innovations – both in manufacturing techniques and in the products themselves – are likely to influence manufacturing mergers and acquisitions over the next few years. Manufacturing, which makes consumer electronics, the Internet of Things (IoT) and smart devices, and lithium-ion batteries for electric vehicles, saw significant growth.

Innovation can also be a way of addressing some of the biggest challenges manufacturers are facing today – such as a tight labor market, a growing skill gap in the industry, and a growing demand for environmentally friendly and sustainable products.

Large companies are also looking for ways to protect themselves from future market shocks. Resilience and supply chain technologies can make modern factories more resilient to disruption. One example is remote access technology.

The most important innovation opportunities also include new manufacturing techniques and technologies. 3D printing with sustainable materials, collaborative robotics, “Factory 4.0” sensors, manufacturing-as-a-service and related solutions can help differentiate manufacturers and give them a competitive advantage.

3. Large manufacturing companies sell peripheral assets

A number of large manufacturers plan to divest peripheral assets in the next few years. The divestment can help these companies reorganize and focus on core competencies and innovations that are likely to be key to any company’s future success in the industry.

The sale was important for companies even before COVID-19. EY Global’s David M. Gale wrote in 2019 that a divestiture would be essential for manufacturers “looking to introduce new technology”.

Gale cited a report from EY Global which found that more than 81% of companies plan to divest within the next two years. Of that 81%, two thirds said they wanted to streamline their operating model.

This was before the COVID-19 pandemic, which may have driven companies even more aggressively to divest non-core assets.

Strategic divestments allow companies to focus their portfolios on their core competencies and find a way to grow in an uncertain economy.

They also provide an opportunity to move away from assets like natural gas and petroleum, which have become increasingly unpopular in the face of changing consumer demands and the growing global talk about climate change.

4. Manufacturers move to more successful niches

At the same time, many companies are adjusting their portfolios to accommodate changes in the consumer market during the COVID-19 pandemic.

While no niche has been spared, some manufacturing sectors have fared much better than others. For example, manufacturers of aircraft and aircraft components are facing a difficult market while manufacturers of intelligent consumer products have fewer problems.

As companies spin off peripheral assets, we may also invest in niches that were successful during the pandemic.

How M&A in manufacturing will change over the next few years

The manufacturing sector is showing significant growth after a bad year. The choice of companies to invest and move forward is likely to have a significant impact in all economies.

Bare check investment vehicles provide significant capital to a number of companies in the industry – including smart technology and battery manufacturers.

Innovation is likely to be the key to success for companies in the industry – and both large companies and investors from outside the sector seem increasingly interested in innovative manufacturing. New manufacturing technologies and innovative products can offer manufacturing companies a growth path.

Photo credit: Vlarvixof / Shutterstock.com

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