Manufacturing M&A
Manufacturing Reports


If there has ever been an ode to uncertainty for the manufacturing sector, it’s 1H 2020. The first half of the year started with the threats we knew – tariffs, trade, fickle consumer habits, and the cyclical nature of the economy – and then dove head-first into the unknown realm of the global COVID-19 viral pandemic.

And if there’s a sector that responds quickly, for better or worse, to external factors, it’s manufacturing. For the record, 2020 has been the year of external factors.

Early into the pandemic, we witnessed an explosion of consumer demand for manufactured goods as people stocked up for stay-at-home orders, the heyday of the toilet paper industry. Then an unemployment rate that was well below 4% prior to the pandemic rocketed to nearly 15% by April. Even with a rebound as the half ended in June, unemployment hovered around 11%…

Click Here to Read the Full Report >



In an ideal world, the performance of the Manufacturing Industry would depend solely on supply and demand, efficiency, ingenuity, and predictable economic cycles. But that is not reality. Politics, too, play a role.

In 2018, the question was whether escalating tensions among the United States and its trading partners – including tit-for-tat tariffs – would hamper manufacturing. In 2H 2019, the numbers have erased any doubt. Positioning the results of the Institute for Supply Management’s Purchasing Managers Index (known as the ISM PMI) over incremental tariffs and trade restrictions, it’s become apparent so-called “trade wars” have negatively impacted the sector. In August of 2018, the PMI approached 61, the highest since 2004, a strong indication of positive sentiment. As tariff spats lingered, a year later, in September 2019, the PMI indicator had slipped to a concerning 47, crossing the line from positive into negative sentiment…

Click Here to Read the Full Report >

Manufacturing Report - 1H 2019


Kinderhook Continues to Push into the Automotive Aftermarket

Since its inception, Kinderhook has now done 74 automotive related transactions and in 2019 continues its push into branded manufacturers serving the specialty and customized automotive market. Heading into this year Kinderhook already had three distinct platforms in this arena: SCA Performance – a direct-from-the-manufacturer lifted truck builder, Race Winning Brands – high-performance parts for powersports, and Bestop – a manufacturer of factory and replacement Jeep soft tops. In February 2019 Kinderhook added a fourth platform in this space, the Adell Group which manufactures aftermarket protective door edge guards for OEMs. In June Adell completed its first acquisition as a Kinderhook platform when it purchased Powerflow – a manufacturer of injection-molded automotive plastic accessories like splash guards, body side molding, and bumper protectors. Through the 2nd quarter Kinderhook has made five acquisitions across these four specialty and customized automotive manufacturers in 2019. SDR anticipates that Kinderhook will continue to announce add-ons for Adell & SCA throughout the remainder of 2019…

Click Here to Read the Full Report >

Manufacturing Report - 2H 2018


In our annual PMI (Purchasing Manager’s Index1) review we’ve carefully watched the impact of the Trump administration on the economic health of the manufacturing industry. At the end of 2017 we noted the correlation between the new administration (however chaotic) and the steady rise in the manufacturing outlook with a PMI of 60.8 in September 2017 being the high water mark since 2004. While PMI still indicates sector expansion, the correlation between the implementation of the recent Chinese tariffs and PMI decline is certainly evident. As the graphic below illustrates, the initial, relatively small tariffs did not seem to upset the outlook, but when $50B of tariffs became $250B of tariffs in September, a general downward PMI trend ensued.

A survey of 219 member companies of the American Chamber of Commerce in South China indicated that many manufacturers do believe tariffs are costing them millions in revenues.  The survey also revealed that most manufacturing firms are dealing with the Chinese tariffs by relocating their offshore manufacturing operations to other countries throughout Southeast Asia.  Only 1% of respondents indicated plans to re-shore manufacturing in the U.S…

Click Here to Read the Full Report >

Manufacturing Report - 1H 2018


Our increasingly connected and digitized world is creating tremendous opportunity for manufacturers of electronic test and measurement (T&M) equipment, which Frost & Sullivan recently measured as an $11bn market. In general, electronic T&M equipment measures and/or generates electric and electronic signals to test electronic components that control, use or convert power to ensure their accuracy and safety.

T&M products are critical to ensuring performance, as well as time-to-market. The accelerating speed at which technological innovations are occurring is causing greater demand for T&M equipment. The development of 5G, robotics and autonomous driving & connected vehicles are some of the applications driving sales of radio frequency (RF) and microwave equipment. Semiconductor automated test equipment (ATE) manufacturing is buoyed by increasing mobile device complexity and ever-increasing data storage needs. Electric vehicles, energy storage and wireless power transfer are driving the market for power analyzers.

One of the biggest challenges for many T&M manufacturers is transferring their historic reliance on hardware revenue to software sales as engineers now demand deeper data analytics and insights from their T&M equipment as well as the ability to seamlessly connect remotely to a wide variety of technological systems. Fluke, a leader in field test and measurement devices, has been a pioneer in building a platform of wireless connected test tools and was one of the first mainline T&M manufacturers to acquire a SaaS platform when it bought eMaint Enterprises in 2016.

In May of 2018, one of the biggest U.S. deals in T&M in some time occurred when Cohu acquired Xcerra at a $627 million Total Enterprise Value to vault Cohu into a global leadership position within the semiconductor test space – which was already highly consolidated. The merged entity now represents more than $800 million in TTM revenue and only happened after U.S. regulators blocked the sale of Xcerra to Chinese investor Hubei.

SDR believes that the continued acceleration of technological advancement and electronic connectivity globally will create significant opportunity for both M&A and disruption across the T&M landscape, particularly as T&M manufacturers look to differentiate through their software capabilities…

Click Here to Read the Full Report >

Manufacturing Report - Q1 2018



In examining private equity purchases of middle-market manufacturers over the last five years, it’s certainly not a surprise to see average EV/EBITDA (Enterprise Value/Earnings Before Interest, Taxes, Depreciation and Amortization) purchase price multiples hitting a high water mark in 2017. Across manufacturers with between $1.75mm and $30mm of EBITDA that were purchased by private equity firms, the average EV/EBITDA multiple rose to 6.9x in 2017, an 11% increase over 2016 and 0.3x above the previous annual high of 6.6x established in 2015.

Additionally, the news is especially good for smaller manufacturers. As fierce competition has driven private equity sponsors “down-market” to smaller deals, they have had to increase their valuations in order to close deals. For companies with between $7.5mm and $14mm of EBITDA, the 2017 EV/EBITDA multiple was 7.9x. This multiple exceeded the 2016 multiple of 7.5x for companies that were double their size (companies with $14mm to $30mm of EBITDA). But the news is even better for the smallest manufacturers (companies with $1.75mm to $4mm of EBITDA) purchased by private equity. Their EV/EBITDA multiple climbed from 5.7x in 2016 to 6.2x in 2017, where it matched the multiple in the same period for companies double their size.

Will private equity’s aggressive approach to the lower middle-market continue? SDR believes in 2018 the answer will be based on the massive amounts of capital that PE firms are looking to deploy. However, in the long run, it’s hard to believe that many of these manufacturing companies with limited scale can generate the types of exits these PE firms need to justify the upward trend in purchase prices…

Click Here to Read the Full Report >

Q4 2017 Manufacturing Report



At the end of 2016, we noted that PMI (the Purchasing Managers’ Index) finished at a 2-year high of 54.7, and we expected that the combination of the “Trump Bump” and the rise in Industry 4.0 would continue to improve the manufacturing outlook in 2017. In fact, despite the chaotic nature of the incoming Presidential administration, PMI still steadily grew over the tumultuous year. The growth in manufacturing reflects the benefits of a receptive regulation-killing government, advancements in technology and re-shoring, all working in concert to create an environment where PMI increased an additional 9.1% by year’s end, to finish at 59.7.


  1. Northrop’s Acquisition of Orbital
    Northrop Grumman announced its intent to acquire Orbital for $9.2bn to compete in the fiercely contested space travel industry. This opens up new venues in the manufacturing sector, as Northrop will be expanding to meet demand for specialized parts. The Northrop-Orbital entity is poised to become the fourth largest space vehicle contractor, behind only Lockheed, Boeing, and ULA (Lockheed and Boeing’s JV). The merger also repositions Northrop ahead of SpaceX and Blue Origin in the outfitting and mass production of space vehicles. The hope is that the existing deep relationships that Northrop holds with the US Air Force and that Orbital holds within NASA will provide an opportunity to cross-pollinate product lines across both agencies.
  2. GE Actively Selling Assets
    GE spent the year figuring out how to shed underperforming business units in a desperate desire to become more nimble, focused, and responsive. GE divested of at least $8.8bn in business units in 2017 and announced its intent to spin off an additional $20bn in assets in order to concentrate solely on its power, aviation and healthcare businesses. Speculation suggests that GE is most likely to exit lighting, transportation and oil & gas next…

Click Here to Read the Full Report >

Manufacturing Report - Q3 2017


It’s no secret that Amazon’s effect on the economy is profound. Consumers now expect products to travel from warehouse racks in the Pacific Northwest to front porches in the Southeast in less than 48 hours – for free. Additionally, they expect access to data that ensures they are paying the most competitive price for an item or service. Not all of this herculean feat can be credited to Amazon, but the behemoth is certainly symbolic, if not archetypal, of this trend.

Due to increased access to information, consumers are shifting loyalties away from specific brands to whom they have historically assigned quality, toward the specific qualities themselves. For instance, 50-60 years ago Coca-Cola was an all-American beverage with a heritage of healing the sick, refreshing the thirsty and satisfying the craving. Now, Coca-Cola is symbolic of obesity and bad diets, while LaCroix delivers bubbly refreshment to the masses without artificial sweeteners. All this to say, consumers know what they’re looking for, and they’ll prioritize “best,” “fastest” and “cheapest” based on their needs.

We think there is a clear thesis, and we, like Babe Ruth in the 1908 World Series, are calling our shot. Private label is going to grow in the U.S. Now, we aren’t really the visionaries we are making ourselves out to be, because the likes of private label grocery juggernauts Lidl and Aldi have announced massive plans for U.S. entry, Whole Foods plans to roll out “365,” and “AmazonBasics” is a top ecommerce brand in several categories, such as batteries. Private label maintains roughly 16% market share in the U.S., compared to 34% in Europe.

Private label represents an opportunity for some categories to “trim the fat.” If consumers are already seeking out a product, and they don’t need to be educated, a sophisticated brand may not be necessary, freeing up significant cost centers in the value chain. Private label brands can pass along some of this margin to the consumer, thus making the product competitive and poised to eat share…

Click Here to Read the Full Report >

Q2 2017 Manufacturing Report


In this quarter’s edition of our Manufacturing Report, we want to highlight seismic changes that we think will create tremendous opportunity for some manufacturers, but could be very detrimental to others.

Technology is enabling new platforms to consolidate and disintermediate established industries. While Uber and Snapchat have garnered all the media attention, companies like Berlin Packaging and Li & Fung have rapidly scaled to billion-dollar plus enterprise values by using technology to add efficiency to supply chains. Need packaging for your product? Berlin positions itself as a vertically integrated “one-stop-shop” for all your packaging needs. How do they do it? First, they offer consulting to help you establish the optimal packaging strategy. Then, they help you design your packaging. What’s so unique about this? Berlin essentially offers the broadest spectrum of manufacturing possibilities available in the market, but it’s not done in-house. The company essentially occupies a glorified brokerage position in the market. To their consortium of packaging manufacturers, Berlin is essentially a sales and marketing agency. To the customer, they offer a streamlined solution. And to competitors, it’s a potentially devastating threat.

Li & Fung is disrupting the traditional manufacturing sourcing model in textiles & apparel in Asia. The contemporary paradigm is for brands or private label manufacturers to offer design and sourcing capabilities, and to use agents to source a network of manufacturing capabilities throughout Asia. The arrangements with agents are usually opaque at best, and at worst, they are nothing but postulation. Li & Fung takes this guesswork out of the equation by streamlining sourcing of any manufacturing capability throughout the value chain. Li & Fung has a significant presence among retailers for private label apparel lines in Europe, and this model could very well be the next step in the U.S. It could potentially disintermediate the role of both the design agency and the manufacturing agency.

This is not to say the sky is falling. It is to say, however, that the sky is being optimized. Packaging and apparel are two examples of end markets that are being disrupted, but it’s coming to an industry near you. It’s time for many manufacturers to evaluate their “raison d’être,” and truly carve out a niche that cannot be compromised by disintermediation. If what you are doing is easily replicated, you probably won’t make the cut to be in one of these consortiums. If your robust margin profile isn’t defensible through some sort of proprietary value-add, it is probably at risk as these platforms establish more transparency in the industry.

On a positive note, this is a tremendous opportunity for many…

Click Here to Read the Full Report >


Q1 2017 Manufacturing Report


The Great Lakes Region – A Bevy of M&A Activity in Q1
The seven states that SDR classifies as the Great Lakes Region (all states that border at least one of the Great Lakes, except for New York) experienced tremendous manufacturing M&A activity in Q1 (see heat map on page 4). In fact, more than 30% of the U.S. manufacturing deals announced in Q1 happened in one of these seven states, which account for 20% of the U.S. population. A deeper dive shows that over half of the Q1 transactions in the Great Lakes region were in the Industrial segment. This increase in deal-making appears to correlate with the new administration’s promise to reshore industrial manufacturing in the Rust Belt.

ISM PMI Continues To Rise
The ISM Purchasing Manager’s Index has continued to rise. The ISM PMI hit a mark of 57.7 in February 2017, which was its highest level since October 2014. A reading above 50 indicates industry expansion. The Index was already on the rise before last November’s election, but the outlook for the U.S. manufacturing industry has certainly become more bullish under President Trump.

AI to Rapidly Expand in Industrial Processes
While AI technology is well on the way to widespread adoption for the home and lifestyle consumer segments, it now seems that the AI wave will penetrate the industrial and manufacturing landscape to a much greater extent. The robot-operated manufacturing facility that is run by human voice command is still a few years away, but Hitachi recently announced a push to develop wearable devices that recognize workers’ actions in real-time, with the ultimate goal of assisting in operations and reducing human error. Rethink Robotics is a leader in AI-centric flexible automation – the ability for a robot to be easily re-tasked to change product design for manufacturing. Rethink’s Intera 5 platform for its Sawyer robot uses computer vision so that on-the-floor workers can easily add and change the robot’s behaviors with very little training…

Click Here to Read the Full Report >


Q4 2016 Manufacturing Report


According to the latest ISM Purchasing Manager’s Index, U.S. manufacturers ended 2016 on a strong note. The ISM PMI rose to 54.7 in December, the highest rating in about two years. A reading above 50 indicates that the industry is expanding. The high index is representative of how manufacturers were feeling at the end of 2016 – optimistic. 2016 brought continued emphasis on U.S. manufacturers across different sectors. With the new administration and the rise in Industry 4.0, SDR expects continued improvements across manufacturing in 2017.


You can’t turn on the TV or look in the daily newspaper without seeing a headline about President Trump making a push for additional American manufacturing from companies that previously produced outside of the U.S. Whether its aggressively pushing Carrier Corporation to bring back manufacturing or meeting with large manufacturing company CEOs, seemingly on a daily basis, it is clear that President Trump’s strong focus in the beginning of his tenure is U.S. Manufacturing. With this unprecedented level of attention, we expect continued pressure for companies to bring manufacturing back to the U.S. Although this mantra helped President Trump win the election, there are multiple positive and negative consequences of this focus that we believe will affect middle-market manufacturing companies in the U.S.


According to NAM, approximately 80% of manufacturing CEOs cited the skills gap for its employees as the main impediment to productivity. This theme was one of the most discussed topics in 2016 for manufacturing companies. With the push by President Trump to bring back more manufacturing, middle-market manufacturing companies that already produce in the U.S. will have an even harder time finding the necessary talent and skills to maintain productivity. Training and retention will be key for middle-market manufacturing companies across the board that are looking to grow their topline through increased productivity…

Click Here to Read the Full Report >


Manufacturing M&A Report - Q3 2016

Some call it the next industrial revolution. Some say it’s just another catch-phrase for the manufacturing industry. Most are unsure about how it applies to their business. But the reality is that Industry 4.0 is a core strategic initiative being put into action by leading manufacturing firms and that companies ignoring the movement will likely fall behind the pack.

Industry 4.0 Defined

Industry 4.0 represents the fourth industrial revolution and is referred to as the “Digital Factory.” It focuses on digitizing the manufacturing industry through new forms of human-machine interactions, data gathering, data analytics and business intelligence, advanced robotics and new production methods.

The core of the “Digital Factory” is data. Manufacturing companies are realizing that throughout their processes, they hold and create a treasure trove of data. Companies implementing Industry 4.0 strategies start with a foundation of deep data analytics and business intelligence to draw conclusions. Insights gained from this data include new revenue opportunities, process inefficiencies, cost reduction opportunities and increased quality-control measures, to name a few. Industry 4.0 also encapsulates the newest trends of artificial intelligence, the Internet of Things, Augmented/Virtual Reality and 3D printing that can completely transform the way factories manufacture products.

How Does It Affect Middle-Market Manufacturing Companies?

To our quarterly report audience and to clients of SDR, the investment to take full advantage of Industry 4.0 is often too costly and time consuming to be practical. Although middle-market manufacturing companies will not be spending millions to develop a new picking technology using Augmented Reality (as Knapp AG has done) or attempting to utilize 3D printing to replace all of their production (as Local Motors has moved to), middle-market manufacturing companies can continually innovate their processes to better understand the data created in the process, to drive efficiencies in production and to create new revenue opportunities…

Click Here to Read the Full Report >


Q2 2016 Manufacturing M&A ReportThe Institute of Supply Management’s Manufacturing Index (ISM) hit its highest level in 16 months at 53.2 in June, compared to a May index of 51.3. A measure above 50 for the index indicates that manufacturing activity in the U.S. is expanding while a measure below 50 indicates contraction. The index has been on an overall rise since the beginning of this year when it hit a two-year low of 48.0, showing a strong recovery for U.S. Manufacturing.

Top of mind for many U.S. Manufacturers within the recovery is the effect of Brexit and the impact on the dollar. On June 23, ISM surveyed U.S. Manufacturers and a strong majority believe that the Brexit will have a negligible impact on their business strategy. With many U.S. Manufacturers focused on the domestic market, it’s likely that the global economic turmoil will only have a minimal to modest effect on the industry. One of the key drivers of manufacturing growth has been the strength of the U.S. consumer. Consumer confidence and consumer spending remain high in the U.S. This is most noticeably seen in the auto industry, where auto sales hit a record high in 2015, and car parts manufacturers are reaping the benefits of low gasoline prices.

A Resurgence in U.S. Manufacturing

Cost increase in China has been said to be the leading cause for increased U.S. manufacturing. However, a recent study by AT Kearney shows that the reshoring of manufacturing is not happening as fast as one would think. In fact, many global manufacturers are moving their manufacturing facilities from China to other Asian countries. According to the AT Kearney Reshoring Index, in the past five years there has been net offshoring of manufacturing (i.e., companies offshore manufacturing more often than companies returning to U.S. manufacturing)…

Click Here to Read the Full Report >

Industry Overview

Manufacturing Industry vs. S&P 500 - Q1 2016Manufacturing operators are making great strides in combating the recent industry obstacles. With the U.S. dollar holding strong, continued volatility in foreign economies and labor costs rising globally, many companies are reshoring their facilities back to the U.S. The Reshoring Institute, which provides support for companies moving their manufacturing operations back to the U.S., and American Cargoservice, an international and domestic freight forwarder that provides project logistics and transporting services, announced in January that the two organizations are creating a partnership to help companies transition their operations back to the U.S. Marriott International (NASDAQ: MAR) announced in March the move of its towel production from Jordan to two facilities in the Southeast. Not only are many U.S. companies moving production back to the U.S., but many international companies are moving production to the U.S. in order to mitigate macroeconomic headwinds. Industry leader Honda Motor Company is moving a portion of production from Mexico to the U.S. with a $52 million investment in a new production facility in Indiana. Also, both ELDOR Corporation and GFF Linamar LLC are building new facilities in the U.S., ELDOR’s for $75 million and GFF’s for $217 million; combined, they are estimated to generate 700 manufacturing jobs in the U.S.

Additive manufacturing (3D printing) is becoming more of a reality. Major industry players are buying into additive manufacturing’s benefits as the technology’s capabilities have increased dramatically, become more affordable and demonstrate real production efficiencies. The benefits of additive manufacturing include shorter lead times, improved quality and reduced waste, as well as flexibility and cost savings. Stryker, a leader in medical device manufacturing, recently has begun using the technology to print one of its products and announced in January that it plans to invest $400-450 million on a 3D printing facility which is expected to be completed in 2016. In Q4 2015, GE Aviation finished modifying one of its facilities to utilize 3D printing where it has been producing parts for one of its bestselling engines. The 3D-printed edition engines are now being distributed and GE plans to continue investing $3.5 billion over the next five years to produce more advanced 3D-printed components. While the technology is still relatively young, it has developed greatly and can create components using metal, plastics, human tissue and other mixed materials.

Companies also are increasing investments in robotics as the necessary capital expenditures have been dramatically reduced for small and medium-sized businesses. Vickers Engineering, an automotive manufacturer that supplies Toyota, GM and Honda, recently automated its factory to keep up with the large automobile customer demand. Operators like Vickers have been able to automate their facilities without having a reduction in personnel. Rather, they are creating less of a need for assembly line staff and more demand for employees who can maintain and operate the newly adapted technology. With technological advancements driving increases in production efficiencies, the industry should recognize significant growth in 2016.

Click Here to Read the Full Report >

Industry Overview

US Manufacturing M&A ActivityThe Manufacturing Industry experienced an overall contraction throughout the second half of 2015. However, larger operators in the space are remaining optimistic. Many of the headwinds that challenged the sector are viewed as non-operational and out of the hands of individual firms. Specifically, foreign currency exchange has directly impacted exporting out of the U.S. with the dollar appreciating in value and major manufacturing countries such as China decreasing their demand due to a weakened economy and increased labor costs. Heavy machinery and equipment manufacturers have responded by focusing efforts elsewhere. Cummins Inc., for example, stated that between current economic conditions and its strong balance sheet, now is the time to make acquisitions. Cummins claimed future acquisition efforts will focus on U.S. innovation, specifically in data enabled services, light commercial vehicles and equipment that uses natural gas. Other machine manufacturers such as Deere & Co. will also be keeping efforts on innovation and have gained traction with hardware in precision-farming solutions.

The U.S. housing market has continued to increase with an estimated 1.1 million new homes built in 2015, according to U.S. Department of Housing and Urban Development. Owens Corning has recognized a weakened emerging-market demand and a surplus of commodities and has made plans to move operations locally to more efficiently meet U.S. demand. This “next-shoring” trend has become the newest frontier for U.S. manufacturers, and Owens has plans underway to develop a $90-million manufacturing facility in Joplin, Missouri, which will help mitigate many challenging macro-economic factors while maintaining capacity to provide roofing, fiberglass composites and insulation, which are all in high demand.

The Trans-Pacific Partnership (TPP) has also responded to the headwinds many U.S. manufacturers are facing, with its October announcement to counteract negative implications of U.S.-Dollar appreciation. After five years of negotiation, the TPP will help increase U.S. exports by eliminating more than 18,000 export taxes and other trade barriers. The industry is also likely to benefit from the reauthorization of the Export-Import Bank, improvements in the Trade Promotion Authority and the suspension of the Medical Device Tax. Through these reforms, U.S. exports will be expanding with increased support and financing, in turn benefiting the Manufacturing Industry as a whole.

Click Here to Read the Full Report >

Industry Overview

Manufacturing Industry vs. S&P 500Amid economic challenges such as the strong dollar, heightened global uncertainty and aging infrastructure, the Manufacturing Industry continues expanding, albeit at a slow rate. The sector has grown for 33 consecutive months as indicated by the Institute of Supply Chain Management’s Manufacturing Purchasing Managers Index (PMI). However, September’s PMI of 50.2 indicates that the Manufacturing sector is experiencing its slowest growth pace since October 2013. The PMI has been below consensus forecasts every month in 2015, and a decrease in the “new orders” sub-index indicates that Manufacturing’s recent struggles may continue.

In the US, manufacturing productivity growth has fallen to well below the average for the prior 20 years. Data supports the concept that poor transportation infrastructure in the US is one of the major reasons behind decreased productivity. Congestion on roads, ports and railroads makes it harder for manufacturers to maintain a network of remote suppliers. In the past, disintermediation has been a major catalyst of productivity gains, but congestion has been forcing manufacturers to return to doing more production processes in-house.

A bright spot for the aerospace segment is the production of unmanned aircraft systems (UAS), also referred to as drones. Military and civil government agencies will likely continue to be the major consumers. Currently US Aerospace & Defense manufacturing firms lead the military drone market, but Israel and Japan are making strong advances. Numerous forecasts project global UAS markets to experience strong growth over the next 10 years. Total US spending for the decade is projected to be $89.1 billion. Commercial uses of drones are also emerging. Production of nonmilitary drones costing $200 or more is likely to exceed one million units for the first time in 2015, generating revenue for the industry between $800 million and $1.2 billion. Tech companies like Amazon, Google and Intel have showed interest in using drones, but they currently cannot move forward because the FAA is still working to resolve concerns about safety and privacy.

Click Here to Read the Full Report >

Industry Overview

US Manufacturing M&A ActivityTraditionally comprising over 10% of the nation’s GDP, the manufacturing sector is a backbone of the national economy. The manufacturing sector outperformed the S&P 500 during Q2. Manufacturing gained 4.68%, well above the 0.23% contraction in the S&P 500. Accordingly, the unemployment rate in the sector stood at 3.9% in June, much lower than the national average of 5.3% in the same month. The low unemployment rate signals a high demand for jobs in this space. This demand is further evidenced by 493 closed M&A transactions totaling $57.95 billion in 2015 alone. In the last twelve months manufacturing has grown by 19.65%; however, this growth is cooling off as a result of the decline in global energy prices and the appreciation of the U.S. dollar. The U.S. dollar has continued to appreciate in 2015, rising nearly 17% against major currencies since June of 2014. This increase has created earnings difficulties for large multinationals with operations overseas. As the dollar appreciates in value, exports become more expensive and fewer goods are sold internationally. As of May 2015, year-to-date manufactured goods exports are down 3.95% compared to last year.

The U.S. Energy Information Administration (EIA) forecasts Brent Crude will average $61/barrel in 2015, which at that level, will place continued pressures on the manufacturing sector. Falling oil prices force energy producers to cut capital expenditures, creating additional headwind for the Manufacturing industry as demand for capital-intensive projects declines.

Click Here to Read the Full Report >

Industry Overview

US Manufacturing M&A ActivityDomestic GDP growth in 2014 coupled with increasing investment in equipment and exports have created a stable environment for manufacturing growth in Q1 2015. US GDP grew by 2.4% from 2013 to 2014, the best full growth year since 2010, according to the Bureau of Economic Analysis. The success of the manufacturing sector in 2015 will be heavily reliant on the outcome of global events. Specifically the slowdown of China’s economy, the potential for deflation in the Eurozone and the economic crisis in Russia could pose major hurdles for the industry this year. However, the overall global outlook for the industry remains positive. A recent poll found that U.S. industrial manufacturers raised their 2014 annual growth rate to 5.2% and have a 2015 target of 5.8%. Additionally, same poll found that 85% of U.S. manufacturers are expecting positive revenue growth in 2015.

Manufacturing M&A carried forward its 2014 momentum and stayed busy throughout Q1 of 2015 with 279 recorded transactions. The rising stock market is increasingly allowing companies to finance potential acquisitions via equity offerings. Additionally, a strong availability of debt financing with low interest rates is making acquisitions an attractive use of capital for many companies. Several sub-sectors remain attractive for M&A including the highly fragmented auto parts and industrial machinery segments as well as the heavy machinery sub-sector, where a long-term consolidation trend continues to play a significant role among companies looking to leverage and reduce their marginal cost of production. Overall, the manufacturing industry is expecting to witness continued high levels of M&A activity and stability throughout 2015.

Click Here to Read the Full Report >

Industry Overview

US Manufacturing M&A ActivityHistorically one of the most active quarters of the year, the fourth quarter turned out to be the weakest for M&A activity in the manufacturing industry, with the number of deals dropping to 313 from 361 in the third quarter. This is coming off the heels of an already deal-heavy first three quarters of 2014. In total, the industry saw 1,369 deals in 2014, up slightly from 1,338 in 2013. The machinery and equipment segment experienced the most transactions during the fourth quarter, much as it has throughout the year.

By late 2014, an estimated two thirds of operators in the industry had reported that they planned to expand capacity in 2015 and nearly one half had reported that they were going to increase capital expense budgets. Furthermore, two thirds intended to pursue a profitable growth strategy, meaning that they were going to focus on both revenue growth and cost reductions by improving productivity and processes as well as implementing new technologies throughout the enterprise. Despite the fact operators are pursuing cost savings strategies, nearly half have increased IT budgets. One of the newer technological trends the industry is moving towards is close-based infrastructure and SaaS applications. This trend will be important to monitor, as companies try to leverage these and other emerging technology platforms to further improve business efficiency. As the way technology evolves from the enterprise level to the level of capital equipment, process, and people, expect a flight in M&A towards these areas as well. Similarly, manufacturing of sensors, data collection components and equipment are likely to be active on the M&A scene in 2015.

Click Here to Read the Full Report >

Industry Overview

Manufacturing Companies by RegionDespite strong performance since the recession, domestic manufacturing companies may be undermining their ability to compete with technologically sophisticated foreign rivals if they continue to delay upgrading industrial machinery. The average piece of industrial machinery in the US is 10 years old — the highest level since 1938. Even as the US economy has returned to growth, companies are spending very little on capital improvements compared to historical norms according to a recent report by Morgan Stanley. For example, capital expenditures by domestic companies increased by only 3 percent in 2013, which is well below the long-term average of 8 percent. These companies may be delaying significant capital expenditures due to rising geopolitical tensions and uncertainty about future tax policies. By pursuing acquisitions and buybacks at the expense of modern equipment purchases, US companies could put themselves at a disadvantage to win contracts over foreign rivals in the long term.

The US manufacturing industry has seen more M&A activity during the first three quarters of 2014 than any other year since the recession. In fact, the number and size of M&A transactions are among the highest of all industries. Going into the fourth quarter, which has historically been the most active, M&A activity in the US is expected to remain strong.

Click Here to Read the Full Report >

Industry Overview

Manufacturing M&A Transactions by QuarterThe first half of 2014 has been one of the most active first six months for the manufacturing industry in the past five years. The industry is expected by many to be a leader in M&A activity for the balance of 2014. The prevailing reason is due to the move of on-shore manufacturing of innovative or new technologies to the United States. This is driven largely by the superior quality standards and the availability of technology in the US, and partly by intellectual property protection. As new developments come out in highly proprietary products such medical devices and consumer technology manufacturing, expect to see an increase in companies being targeted by strategic buyers and by financial buyers looking to capitalize on the macro economic trends currently underway.

Manufacturing has trailed overall M&A slightly in recent years, but deal experts predict that as overall deal flow slows in 2014 (due to projected reductions in consumer spending), M&A activity in manufacturing is expected to pick up.

Thus far, machinery and electrical components have led the charge, combining in the machinery and equipment segment for 40 transactions, with consumer luxury goods, textiles, and apparel also posting several large transactions.

Click Here to Read the Full Report >

Manufacturing Email List

If you’d like to receive our next Manufacturing Report by email, please click here and select “Manufacturing Report” from the list.

Report Sign Up