Manufacturing Merger and Acquisition Activity Increases in 2011

Feb. 1, 2012
Companies take a cautious approach with smaller deals; divestitures also increase as manufacturers shed less-profitable units.

The heavy industrial and metals sectors were the most active manufacturing segments engaged in merger and acquisition deals in 2011, according to a quarterly mergers and acquisitions report released by PricewaterhouseCoopers Feb. 2.

Most of the M&A activity in 2011 involved smaller, less-risky deals as the global industrial products industry continues to take a conservative approach in an unstable economy, PwC reported.

Divestitures became a major part of deal activity across all sectors as companies shed unprofitable businesses. Divestiture deal value as a percentage of total M&A value increased to 33% from 30% in the 2009-2010 period.

The industrial products industry includes the aerospace and defense, chemicals, engineering and construction, industrial manufacturing, metals and transportation and logistics sectors.

The global industrial products industry reported 801 deals worth more than $50 million in 2011, up 2.3% from 2010.

The industrial manufacturing sector realized the largest increase in deals exceeding $50 million with 161 mergers and acquisitions, up from 135 in 2010.

The metals industry reported 122 transactions worth more than $50 million, up from 106 deals the previous year. Within the metals sector, divestitures accounted for 38.5% of deal activity, PwC reported.

Divestures and spin-offs took longer to close in 2011 than in previous years as buyers appear to be more cautious. Companies considering selling assets should pay close attention to market trends, said Bob McCutcheon, U.S. industrial products and metals industry leader at PwC.

"To close deals and maximize the value of their assets, sellers should strive to gain a better, more comprehensive understanding of the complexities of the divestiture market and gauge the full scope of buyer concerns and responding to the global economic crises that have changed the rules of the game," he said. "Certain sellers are interested in acquiring capital as companies look to restructure their balance sheets by building up cash reserves or paying down debt. Selling a high-performing or high-value business unit at a desirable price can go a long way toward helping a company achieve that goal."

More companies in 2011 sought deals closer to their domestic markets to limit legal and cultural risks associated with foreign transactions, McCutcheon said.

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