It’s hard to imagine it’s been over one year since the global COVID-19 pandemic began to disrupt our lives. Global economies have braced themselves for the last 14 months as countries were plunged into severe damage-control mode to weather the social and economic hardships wrought by the pandemic. As we approach the end of the first half of 2021, it is safe to say that a new normal is upon us. Global M&A has seen a strong resurgence in the first half of 2021, driven by historic M&A activity in the first quarter of 2021. Industrial manufacturing M&A has followed a similar trend with deal value increasing by 91% in the first half of 2021 compared to the first half of 2020, while deal volume decreased by 18% over the same period. Deals in the first half of 2021 were driven by the need to access capital to scale up early-stage technology-driven ventures as well as by the traditional need for M&A focusing on driving scale and product-portfolio expansion.
Industrial manufacturing deals outlook
The rapid development and rollout of the COVID-19 vaccines in the U.S. has fueled an overall optimism that the worst of the pandemic is behind us. The U.S. economy has shown greater signs of recovery than other major economies due to the vast supply and rapid distribution of the vaccine within the country. As the US continues to open during the second half of 2021 — and as other countries begin to recover from the social and economic impact of the pandemic — we expect deal activity to resurge on a global basis over the second half of 2021. Deal activity within the US (on both a target and acquirer level) provided a major boost to global M&A. However, as other global economies continue to recover, we anticipate that cross-border transactions will return and drive dealmaking to higher levels. The second half of 2021 should provide a snapshot of how players in M&A will begin to navigate in a post-pandemic world.
The nature of capital
As we first saw in 2020, the continued rise of the special purpose acquisition company (SPAC) has taken the M&A world by storm. SPACs have become a driving force, comprising more than 60% of the total US IPO proceeds raised by SPACs in YTD 2021 (according to Dealogic). It is estimated (per Dealogic) that there are more than 400 SPACs with uninvested capital that are seeking acquisitions. SPACs are uniquely positioned to provide development-stage companies quick access to capital enabling an opportunity to rapidly scale operations to exploit emerging market opportunities. We expect to see increased SPAC activity involving development-stage enterprises in areas including electric vehicle (EV) charging infrastructure, power storage and 3D printing, to name a few.
Commitment to purpose and talent
The COVID-19 pandemic has highlighted the importance of companies to attract, retain and upskill workforces. Companies that have strategically invested in the technical capabilities of their employees will be the most agile in adapting to the new normal of a post-pandemic world. With an increasing focus on environmental, social and governance (ESG) — including the forthcoming development of ESG standards and the related impact on shareholder value — ESG will likely be a factor in evaluating the attractiveness of assets in M&A going forward.
Geopolitical and regulatory shifts
With the rapid development and rollout of COVID-19 vaccines in the US and the strong presence of fiscal monetary policy, the M&A environment in the US has experienced a quicker resurgence in dealmaking than in other countries. Industrial manufacturing M&A has followed the trend of other sectors in the US and has been ramping back up, despite supply-chain and commodity pricing headwinds seen by many industrial manufacturing companies. North American deal value for the first half of 2021 as a percentage of the total worldwide is the highest for both target and acquisition M&A since 2015. We expect this trend to persist through 2021 as vaccination rates rise and the country opens up. Additionally, the transition to the new Biden administration has lowered trade tensions.
Innovation and transformation
We expect companies to continue to invest in additive manufacturing, digital development (including, digital supply chain solutions) and technologies supporting sustainability. As the COVID-19 pandemic has underscored the need for companies to bolster technological capabilities to reduce operational disruptions and lower supply-chain risks, we will likely continue to see such investments.
New ways of being
As the pandemic continues to create new ways of living, particularly in how businesses and consumers procure goods and services, digital supply chain and digital sales and marketing are becoming increasingly important to industrial manufacturing companies. Companies with limited digital supply-chain and sales and marketing capabilities are struggling to keep up with competitors, and many of those are turning to M&A as a catalyst to advance their digital strategies with the aim of operating more efficiently — and in a “touchless” manner — while enhancing the overall customer experience.
By Paul Elie & Michelle Ritchie
About the authors: Paul Elie is Industrial Manufacturing Deals Leader, PwC US; Michelle Ritchie is Industrial Products Deals Leader, PwC US.
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