Digital, automation and green transition set to revive manufacturing M&A

A new report has forecast that digital transformation, automation and the green transition will be the key factors behind an expected increase in manufacturing M&A during 2024. While dealmaking fell in 2023, acquisitive sentiment in the sector remains high, with numerous tailwinds expected to lead to an increase in activity.

BDO’s Manufacturing Deals Review for 2023 found that UK manufacturing M&A deal volume fell by 11 per cent last year from 793 in 2022 to 706 in 2023, as businesses prioritised protecting their cashflow and increasing stability in the face of ongoing inflationary pressures.

Despite this considerable drop, however, the overall tone of the report was highly optimistic, with BDO noting that the decline in deal volumes was mostly limited to the first half of the year. While H1 2023 was slow, the second half of the year saw more than 400 deals completed and this momentum is expected to continue into 2024.

BDO’s report found that the engineering services subsector was the most prolific in terms of dealmaking for the fifth consecutive year in 2023, accounting for close to a third (28 per cent) of all completed transactions. The second most-active sub-sector was the food and drink manufacturing industry, which saw 102 deals, up from 79 in 2022 and 14 per cent of the year’s total.

Additional research, conducted by BDO and Make UK, demonstrated considerable appetite for M&A among UK manufacturing firms. More than a quarter (26.8 per cent) of manufacturing companies in the UK said that they were planning to make acquisitions over the coming two years as they seek to scale up their operations and gain access to new markets and products. Over a three-to-five-year period, this figure rises to well over a third of businesses (38 per cent).

The research also showed the vital role that private equity has played and will continue to play in UK manufacturing M&A. 16 per cent of deals completed in 2023 involved private equity involvement and one in five UK manufacturers (20 per cent) said that they were likely to seek private equity investment within the next five years.

Commenting on the findings, BDO UK Industrials M&A Partner Roger Buckley said: “For many manufacturers, 2023 was about protecting cashflow and prioritising stability. The second half of the year saw an encouraging resurgence in M&A deals despite ongoing economic challenges, with the lower- and mid-market continuing to transact at volume.”

“Looking ahead, digital transformation, automation and the green transition will remain high on the agenda, with sustainability now playing an integral role in almost every deal we see. Private equity still has huge quantities of cash to deploy, and opportunities in the capital markets could well open up towards the end of 2024. Another year of post-COVID trading should help reassure buyers and encourage them to take stock of the huge opportunities an acquisition can bring.”


Find out more about UK manufacturing M&A trends

Despite ongoing economic challenges, M&A remains a strategic priority for businesses in many sectors

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