Manufacturing M&A shows positive signs after COVID lockdowns

Levels of M&A involving UK manufacturers increased by 5% in the first six months of this year compared with the second half of 2020 boosted by greater interest from US buyers, according to analysis by Irwin Mitchell.

The law firm has analysed Experian’s MarketIQ database and found that in the first six months of this year, 655 UK manufacturing businesses were the target of M&A activity. This compares to 620 deals in the 2nd half of 2020 and 608 in the first six months of last year.

In 2021 the vast majority of transactions (56%) were acquisitions compared to around 40% last year. Reflecting the turbulent and challenging economic environment, around 9% of deals in the sector last year were related to refinancing.

MarketIQ reveals that during the last five years the percentage of deals involving US buyers stood at around 10%. In the first half of 2021 this figure stood at 9.4%, compared to 8% last year.

Irwin Mitchell’s analysis also shows that the UK has some way to go before replicating the 798 deals that were completed in the first half of 2016.

Emma Callow, a Corporate partner and manufacturing sector specialist at Irwin Mitchell, said: “It is not surprising to see that deal flow reduced at a time of significant economic uncertainty and when manufacturing output fell so sharply.

“Although the fall in M&A activity might not be as significant as some may have predicted, it is important to recognise that the type of deal did change in 2020. Over the last five years it was common to see acquisitions accounting for more than half of completed transactions, followed by development capital deals and management buyouts. However during the peak of the pandemic, the proportion of acquisitions fell to around 40% with refinancing transactions increasing significantly.

“It is however encouraging to see deal levels increasing at the start of 2021, particularly as much of the economy was still in lockdown at this point.

“We’ve certainly seen deal flow continue at pre-pandemic levels since the start of 2021. My manufacturing and engineering clients have been busy and even in the automotive sector, I’m seeing an appetite to acquire which certainly hasn’t been there over the last 18 months.”

Emma added “These statistics certainly highlight the resilience of the sector but there’s still a way to go before we see the levels of M&A witnessed in 2016.”

Additional research by Irwin Mitchell has revealed that across all sectors of the economy, UK businesses are currently the target of a significant number of approaches by overseas buyers.

It found that the volume of deals involving the ten most active countries involved in UK M&A stood at 399 in the first half of 2021. This compares to 336 in H1 2020 and 339 deals in H2 2020. Transaction levels were at 402 in H1 2019 and 393 in H2 2019.

Emma added: “Generally deal activity is increasing and it seems that the manufacturing sector, like many others, is benefiting from this increase particularly from the US.

“It is too early to see whether the increase seen in the first half of this year will continue, but from experience, we are seeing strong demand for UK businesses both inside and outside of the UK. Confidence levels have and continue to increase and as they do, I’d expect the appetite to transact will increase.”