Author: Roger Buckley
Roger has been an M&A Corporate Finance Partner at BDO for over 20 years, advising owner managers, private equity and corporates on company sales, acquisitions, MBOs and fund raising in transactions typically valued between £10m and £100m.
He has a wealth of M&A experience having led over 200 assignments and extensive sector expertise in a number of sectors including Manufacturing.
The M&A market in manufacturing is buoyant – of that, there is no doubt. The latest transaction figures point towards record quarters not seen since before the financial crash in 2008. The market is cash-rich, whether that is from acquisitive companies or eager investors. Either way, the strong appetite for doing deals has surprised many.
Why is this happening? Record levels of activity are being driven by a number of factors: firstly, the market is playing catch-up after a deal hiatus in Q2 2020, secondly, there is a palpable desire by certain manufacturers to continue on a positive growth trajectory and, finally, some manufacturers are looking to achieve supply chain resilience or to accelerate strategic plans in light of the global pandemic.
It’s clear that neither companies nor investors are being deterred by the any lingering uncertainties created by the pandemic.
Case in point
There are a number of deals that caught my eye in the first quarter of 2021, which demonstrate perfectly the desire in the market to get business done.
In March, we acted for Allegion plc on the non-core carve-out of QMI Door Solutions to HLD Group. QMI is a bespoke manufacturer of high-quality timber and steel door solutions for commercial and industrial buildings. Operating in the Gulf region including UAE, Oman, Saudi Arabia, Bahrain, Kuwait and Qatar, QMI has extensive in-house design capabilities and has supplied a number of prestigious projects in the region. HLD is a UK industrial investment group and will support the next stage of growth for QMI, as well providing a number of synergies with its existing businesses.
Within days, we also acted for the shareholders of Mikrofill 2000 Limited on the sale to Stuart Turner Limited. Mikrofill is a leading manufacturer of regulatory approved pressurisation, boilers and hot water generation products that has experienced significant growth in recent years. Stuart Turner, backed by LDC, is an internationally recognised provider of water-boosting solutions and can unlock international expansion for Mikrofill and support continued growth of its core product range.
Emerging trends in manufacturing M&A
The two deals align with a number of emerging trends that are likely to define market activity in 2021. On the one hand, large corporates, such as Allegion, are clearly reviewing their portfolio and divesting subsidiary businesses outside of their core strategy. On the other, buyers are achieving desired growth by gaining an international foothold in tried and tested territories. The Mikrofill transaction equally demonstrates the attraction of solidifying a core proposition through the addition of a heritage brand with reputation, quality, knowledge and skills as the cornerstones of its business.
What the last two quarters have taught us is that consolidation will continue to be a key factor in driving market activity, as companies position themselves in a post-COVID-19 world.
There are some distinct themes that will also help to define the manufacturing sector in 2021 – trends that have gained momentum and traction thanks to the events of the last 12 months. There is little doubt that the adoption of digitalisation, automation solutions and off-site manufacturing are all influencing decision-makers. Meanwhile, the green agenda has also grown in prominence when it comes to the future strategic direction of manufacturers.
The pandemic and Brexit have left an indelible mark on the UK’s global supply chain that will shape deal activity in the coming months. The need to make supply chains more resilient is more important than ever. As such, we are likely to see an increased number of manufacturers on-shoring, re-shoring, or near-shoring their supply, or alternatively, divesting as operations move overseas.
Whatever the deciding factors may be, there will be strong investor appetite for the right deal. As we exit the most active quarter for manufacturing M&A since 2008, we will continue to see a surge in private equity confidence – an eager investor population buoyed by a manufacturing sector that in 2020 proved remarkably resilient, and one that is prime for growth.
Read our manufacturing deal review 2020