Manufacturing

Manufacturing M&A Outlook 2010

Expect many changes in the manufacturing industry for 2010. Climate change policy, particularly on greenhouse gas (GhG) emissions and related legislation, will be a significant driver of change. For many companies, these issues will be a primary focus when considering planning and executing their strategies. Companies also must consider how the competitive landscape will change as they compete with international companies not regulated in this way. The cost of carbon, realized through regulating GhGs, will raise the overall cost of business. More than just looking at the profit margin, everything from capital allocation decisions to mergers & acquisitions (M&A) strategies will be impacted.

M&A activity in the manufacturing industry also has been affected by the recession. Both the number of M&A transactions and the value of transactions have reached significant lows. Even as macroeconomic fundamentals start to show some improvement, deal activity in the industry likely will not increase until the global economy has begun to evidence sustained recovery. PriceWaterhouseCoopers writes: “In the current environment, the companies best positioned to benefit from mergers and acquisitions will continue to be those with strong and defensible business models and favorable capital positions.”

Interestingly, uncertainty in future environmental policy and the financial crises have had a greater impact on cross-border transactions. Domestic transactions accounted for 65 percent of total transaction volume in 2009, versus 55 percent in 2008. Domestic M&A also allows a company to build scale and density in more-familiar geography.

Expect transactions with the manufacturing sector to focus on smaller deals. There also likely will be an elevation in the number of transactions where a smaller company already in compliance with proposed legislation is acquired to gain process and system knowledge for compliance.

SOURCES: PriceWaterhouseCoopers, Deloitte

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• Manufacturing M&A Outlook 2009
• Manufacturing M&A Outlook 2008