UK manufacturing M&A activity fell by more than 10% in 2023 amidst tough economic headwinds, but the sector is hopeful of a rebound in 2024 as manufacturers look to mergers and acquisitions to expedite their growth plans, according to accountancy and business advisory firm BDO.
BDO’s Manufacturing Deals Review, published today [Thursday 29 February] reveals that 706 UK manufacturing deals were completed in 2023. This was down 11% on the 793 deals reported in 2022 as businesses battled inflationary pressures, protected cashflow and prioritised stability.
Despite the drop, analysis shows that the slower activity was mostly confined to the first half of the year. In the last six months, more than 400 deals were completed with the momentum expected to continue into the next 12 months.
Businesses in the engineering services subsector were the most prolific deal doers for the fifth year running, representing almost a third (28%) of all completed transactions. This was followed by businesses in the food & drink sector (14%), which saw deal volumes increase from 79 in 2022 to 102 in 2023.
According to additional research by BDO and Make UK, more than a quarter (26.8%) of UK manufacturers are looking to make acquisitions in the next two years as they look to scale up operations and access new products and markets. This figure rises to 38% over a three-to-five-year period.
Private equity plays an important part too. Of the deals completed in 2023, 16% involved private equity investors and one in five (20%) manufacturers say they are likely to seek private equity investment in the next one to five years.
Roger Buckley, UK Industrials M&A Partner at BDO, said: “For many manufacturers, 2023 was about protecting cashflow and prioritising stability. The second half of the year saw an encouraging resurgence in M&A deals despite ongoing economic challenges, with the lower- and mid-market continuing to transact at volume.
“Looking ahead, digital transformation, automation and the green transition will remain high on the agenda, with sustainability now playing an integral role in almost every deal we see. Private equity still has huge quantities of cash to deploy, and opportunities in the capital markets could well open up towards the end of 2024. Another year of post-Covid trading should help reassure buyers and encourage them to take stock of the huge opportunities an acquisition can bring.”
