M&A Deals in the Industrial Manufacturing Sector Drop

May 19, 2008
Deals declines 46% from first quarter of 2007

A total of 39 deals (disclosed value at or above $50 million) were announced in the first quarter of 2008, a 17% decline from the 47 deals announced in the first quarter of 2007, according to PricewaterhouseCoopers. Total deal value for industrial manufacturing transactions totaled $7 billion, a 46% decline from the $13 billion announced in the first quarter of 2007 and a 78% decline from the $31 billion announced in the first quarter of 2006. At this rate, projected total deal value for 2008 is set to fall far short of the levels set in 2007 ($88 billion) and 2006 ($92 billion).

"A shortage of large industrial manufacturing deals took a toll on deal values during the first quarter of 2008 and will likely impact deal values for the remainder of the year," said Barry Misthal, U.S. industrial manufacturing leader at PricewaterhouseCoopers. "Financial investors are playing a lesser role due to higher risk premiums and a decline in debt market liquidity, and it is unlikely that total and average deal values will rise to previous levels until the financing environment improves."

As concerns mounted over the U.S. financial environment and tightening credit market, strategic investors took the lead, accounting for the majority (85%) of acquisitions during the first quarter of 2008. Financial investors accounted for only 15% of deals during Q1 2008, as compared to 33% of total deals in 2006 and 36% of deals in 2007.

Consistent with previous quarters, industrial machinery targets made up the majority of the deals, capturing 43% of deal value. Other popular industry targets included fabricated metal products (33%), electronic and electrical equipment (14%) and rubber and plastic products (9%).

Overall, the pace of deals involving U.S. targets declined (12 deals) as compared to U.S. acquisitions announced during 2007 (65 deals) and 2006 (51 deals). However, cross-border acquisitions of U.S. companies remain attractive, as acquisitions of U.S. targets by firms overseas increased (33%), mainly driven by the relative weakness of the American dollar.

"American companies are becoming popular targets for foreign investors who are less affected by the reduced lending capacity of U.S. financial institutions," said Paul McCarthy, U.S. industrial manufacturing transactions services strategy leader at PricewaterhouseCoopers. "Overall, strategic investors who are not limited by the decline in debt market liquidity or do not depend on local U.S. financing are best-positioned at the moment to pursue deal opportunities in the industrial manufacturing industry."

For more information on the full report, visit: www.pwc.com/manufacturing.

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