Merger and acquisition (M&A) activity is picking up fast in the US as industrial groups rethink their strategies for the post-Covid world. Numerous uncertainties remain, from the economic outlook to geopolitical risks, but there may also be major opportunities in technological innovation and consolidation. In our latest webinar, panelists discussed these and many other issues facing industrial dealmakers in 2024 and beyond.

A snapshot of industrial M&A

The 500-strong audience for our industrial M&A webinar was overwhelmingly positive about the outlook for industrial M&A with almost three quarters (74%) saying they expected M&A to increase, and our panelists agreed.

Anton Schneerson, Chief Executive Officers at Pleuger Industries, said there was a “definite surge in strategic acquisitions” as companies looked to address issues in supply chains, operations, and competition. Deals, he said, were also becoming more sophisticated and complex.

Schneerson’s view was supported by panelist Abby Roberts, Senior Director at Datasite Insights. Drawing on Datasite’s work with thousands of ongoing deals, Roberts reported that sell side kick off were up 21% globally in the six months to April 2024, while buy-side kick off were up 42%.

Headwinds and tailwinds

When asked about possible headwinds and tailwinds for industrial M&A, both panelists raised the macroeconomic outlook and specifically inflation. “It’s a perpetual driver whether that be as a headwind or a tailwind,” said Roberts. Schneerson agreed inflation was crucial and mentioned the upcoming US election as another significant uncertainty.

Polling found the audience agreed, placing these two as the top issues that would shape industrial M&A in the year ahead. The Inflation Reduction Act was seen as having a highly positive influence on industrial M&A, though at the same time the activist approach to anti-trust issues from the Biden administration was another factor, according to Roberts.

Schneerson said the political outlook would be significant in the way companies addressed multiple issues.

“I have been watching developments on the questions of whether there will be a lot more cross-border or more national M&A to enhance the integration of companies to reduce operational risk and hedge against the supply chain disturbance going on around the world,” Schneerson said.

“The view and direction the government will take on this will be a very important point depending on who wins.”

Are deals closing?

Deal kick-offs are, of course, only the start of the M&A process. Roberts provided a snapshot of the situation from Datasite Insights, showing that globally the rate of deal closures was unchanged in the six months to April and in the US was up 4%. In Europe the Middle Esat and Africa (EMEA), however, deal closures were down 3%.

Roberts suggested that higher deal kicks offs were overloading dealmakers and slowing down close rates. “Too much on the front-end and the back-end struggles a bit,” she said.

Looking from the perspective of corporate buy-side, Schneerson agreed. “In the last 12 months closures have been reduced, but not only because of the failure of the process, but also because some deals are being put on hold due to those uncertainties that were highlighted. That uncertainty will continue,” he said.

Deals involving more prep and more detail

Asked if the deal-making process in industrial was changing, panelists agreed it was. Roberts highlighted the boom M&A year of 2021 during which she said, “corners were cut” and “some bad deals were done”, followed by a much slower 2022 and 2023 as buyers became markedly more cautious. The result, she said, seems to be sellers now taking more time to prepare their pitch.

“In the US prep times for sellers have gone up to an average of 58 days... which is a lot,” Roberts said. However, she added that deal processes were beginning to shorten –perhaps because of longer and more detailed pre-deal prep by sellers.

Schneerson said the detail currently being provided and expected in M&A deals was greater and the focus has also changed. While environmental and IT issues were previously the concluding section of sale documents, they were now often the very first issues addressed.

Hotspots trends and government policy

Environmental and IT themes also emerged as key when the panel was asked about potential hotspots and trends in industrial M&A. "Anything relating to sustainability digitalization and supply chain will be important and you can find a lot of new things in those areas. I would see a lot of deals in those technology-related and renewable-related areas,” said Schneerson.

This was a view that chimed with our audience poll which found industrial technology was seen as the area most likely to be the subject of M&A activity over the coming year.

Renewable and environmental issues also featured in a closer discussion of government policy and its role in industrial M&A. “The Securities and Exchange Commission recently added new standards for environmental disclosure,” said Roberts, “and institutional investors are also calling for more transparency when it comes to industrial supply chains. The environment and infrastructure are always going to impact industrial in a big way.”

Schneerson highlighted that in Europe environmental social and governance (ESG) issues were now an essential part of any M&A deal, with most companies producing ESG reports. “In 2025 all companies will be required to have an ESG report. You can’t now do M&A without that.”

Private equity coming off the sidelines

The final question posed to panelists was on the role of private equity in the industrial M&A market. Both Roberts and Schneerson agreed private equity was a key player in the sector, and Roberts highlighted the pressure on private equity firms to deploy capital that has built up over recent years. Schneerson meanwhile highlighted the potential target companies that could attract private equity players.

“We see more and more distressed companies and this is exactly the thing for private equity as they can go into a really hairy situation. Their role right now is really quite important,” he said.

Key takeaways

The session concluded with panelists suffering their key takeaways from the event.

Roberts said there was a “quiet revolution” taking place in industrial. “Because of Covid and supply chain disruption and the need for tracking in supply chains and ESG, we are seeing this become a more dynamic and modern industry where you are going to see a lot of cutting-edge changes,” Roberts said.

For Schneerson the outcome of the US election was a big unknown. But while the outcome of that event remains entirely unknown, Schneerson was more certain about the abiding issues. "We have to look at renewables and technology, these are key, and these are what will boost M&A. And we need to look at the strategic integration of supply chain in the US,” Schneerson said.