Manufacturing Deals Review

• Deal volumes increased by 11% in 2024, with 782 completions in the year.
• After a slower first half with 307 deals, H2 saw strong activity levels, with 475 deals.

  
  

• The top five sectors for deal activity in 2024 were Engineering Services, Food & Drink, Building Products, Packaging & Materials and Industrial Automation.
• Most sectors saw strong activity levels with notable increases in Engineering Services (26% rise) and Packaging & Materials (18% rise).
• Engineering Services increased its share of total activity to 32%, while Food & Drink retained its spot as the second most active sector with 13% share.

  
  

  
  

• Buy-out volumes nudged higher to average 19% of deals in 2024.
• The sectors attracting the most interest from investors were Packaging & Materials (26%), Electric & Electronic Hardware (23%), Industrial Automation (22%) and Engineering Services (22%).
• Corporate buyers dominate in Food and Drink, Life Sciences and Test & Measurement.

  
  

• The proportion of cross-border transactions decreased to 33% of deal flow in 2024, down from 37% in 2023 and 2022, and 40% in 2021.
• Inward investment, which accounts for the majority of cross-border activity, declined by 8% in the year, with 166 UK businesses acquired by overseas buyers (180 in 2023).
• US and Sweden remained steady investors in UK companies. Europe still retains the highest share of inward investment (58%), followed by North America (34%). 
• Outward investment increased slightly with 89 overseas targets acquired by UK businesses (85 in 2023). 44% of outward investment was to Europe, and 40% to North America.
   
  
  

• The listed markets continue to hold up well and remain on a long-term upward trajectory.
• BDO Industrials index continues to track the FTSE 100 at a premium.
• During 2024 Industrials EV/EBITDA multiples rose to converge with FTSE 100 multiples.

• We expect to see a solid year of M&A ahead.
• Valuations are holding firm and there remain a large cohort of cash-rich investors who believe in the long-term prospects and broad opportunities for growth in the sector.
• Private equity transactions are likely to increase, with many attracted to the vast opportunities in advanced manufacturing and the appetite of business owners to exit, derisk or seek growth.
• Manufacturing remains one of the most resilient sectors with a wide range of positive market drivers, including ESG, technology, product expansion and transformation motivating M&A activity.

  
  

Industrial Automation continues to be a hot area for M&A — with the volume of global M&A transactions in the sector in 2023 and 2024 nearly double those seen in 2019 and 2020.

In the UK, over 100 deals completed across Industrial Automation and Test & Measurement in 2024, with valuations remaining strong.

M&A activity is being driven by consolidation among strategic players seeking geographic and vertical integration, significant private equity interest, as well as the acquisition of new advanced technologies such as AI and big data.

Industrial automation is part solution to the challenges faced by manufacturers such as productivity issues, labour efficiency, skills shortages, supply chain security, higher quality standards and a requirement to better use resources from an ESG standpoint.

Key features of businesses in the sector typically include secured orderbooks, recurring software or service revenues, IP ownership, high barriers to entry and impressive margins. These features are very attractive to private equity investors who have been involved in a staggering c40% of global M&A transactions over the last three years.

As an example, KKR invested in Industrial Physics in 2023 and have quickly sought to consolidate through M&A. BDO led the sale of Torus Technology Group (“Torus) to Industrial Physics as a key deal for the company in 2024, bringing a wider range of test and measurement equipment and metrology services to the group. Torus had developed a best-in-class product range that focused on the metal and plastics beverage packaging segments. The fully configurable systems measure all common industry features and defects such as the threads, body, thickness, coatings, internal diameter, top load, volume, weight and burst pressures. Ultimately the technologies provide immense benefits to packaging manufacturers — improving quality while reducing material content, which cuts costs and provides environmental benefits.

We also advised Mpac Group on the acquisition of CSi Palletising, a provider of turn-key automation solutions, specialising in end-of-line systems, continuing BDO’s long history of deals in the sector.

There are plenty of businesses innovating in this space. Omron Corporation for example has developed an AI-driven control system that combines sensors, control technologies, real-time data and data analytics to enable systems that can learn from their environment and make autonomous adjustments to improve efficiency and productivity. In one demonstration of the system, a bottle filling machine automatically pauses if any problem arises such as mechanical friction or vibration outside of the norm, before recommencing filling once the problem is resolved.

The post-COVID investment surge in automation has been sustained despite slower economic growth and higher interest rates following record levels of orders and backlog generated for automation businesses over the 2021 and 2022 period. Interact Analysis expect that overall global robot shipments have continued at broadly similar levels to both 2023 and 2024.

Further growth is expected in 2025 driven by anticipated increases in machinery investments – as key economies lower interest rates – alongside a broader recovery in the global manufacturing sector. A return to strong growth of over 7% per annum is then forecast from 2026 onwards.

Whilst the M&A statistics are buoyant and longer-term trends compelling, the industry does face some challenges. Adoption has been a key issue — within the UK in particular. Currently, according to the International Federation of Robotics, the UK lags behind all major competitors, and is ranked 25^th in the world for robot density (number of robots per 10,000 workers) giving a huge opportunity for productivity improvement.

Interestingly, the rapid advance of technology in this space may be starting to ease some of the adoption challenges, particularly those relating to integration issues and lack of technical expertise and knowledge of implementing and maintaining automation systems amongst SMEs.

Now paired with the power of AI we may be seeing the convergence of several factors all working in favour of automation technologies and increasing its scope.

According to BDO’s latest Economic Engine survey 87% of UK SME manufacturers are planning investments in the next two to five years, with 37% planning to focus their investment on advanced equipment or machinery. The top areas of planned investment in automation or AI are as follows:

• Running supply chains (eg distribution networks, warehouse inventory) more efficiently
• Developing new products or services using in-house intellectual property or data (eg demand forecasting, predictive maintenance, quality control)
• Machine learning for product or service recommendations to prospective customers.

Such investment will continue to drive growth in the sector and underpin M&A opportunity in industrial automation over coming years.

Read more of our Industrial Automation insights here

Matthew Goodliffe Tel: 07800 682418 Email: matthew.goodliffe@bdo.co.uk

The Manufacturing and Industrials sector saw a surge of interest in Circular Economy investments in 2024. Across the market as a whole there was some levelling off of investment in UK businesses displaying circular characteristics, but the Manufacturing and Industrials sector bucked the trend with a 35% increase in circular economy deal volumes.

This isn't surprising, given that half of the 200+ Manufacturing SMEs we surveyed recently confirmed their strategic intent to adopt circular business models. Encouragingly, the recent BDO/Make UK survey also revealed that 40% believe that circular models are more profitable than linear ones, providing a strong financial incentive for change.

7 in 10 respondents consider that operating a sustainable business is important to customers — understandably so, as corporate customers face increasing regulatory and reputational pressure to meet carbon reporting targets, making sustainability a key factor in purchasing decisions.

In 2023 we observed an increase in corporate venturing, with large multinational corporates setting aside funds to invest in exciting and innovative circular businesses. This has continued into 2024 as organisations face sustainability challenges that require addressing with ever-accelerating timescales — and in many cases they simply do not have the in-house expertise to deliver.

The ability to invest in early-stage circular businesses effectively outsources corporate sustainability innovation for a relatively modest fee, with significant upside available if the right businesses are backed. 2024 saw Coca Cola take this approach, investing in Pipeline Organics which develops higher efficiency enzymatic biofuel cell technology capable of generating industrial-scale clean, renewable electricity from wastewater.

Back to our survey, and only 32% of respondents felt their product or service was favourably differentiated by its sustainability features. With nearly two-thirds of businesses planning to adopt more circular practices in the next three years, there's a clear gap between what the market is currently offering and the circular vision of many of its participants.

M&A will likely play a crucial role in bridging this gap, with entrepreneurial, purpose-driven businesses offering attractive solutions to help larger corporates move towards a more sustainable future.

We’ve been delighted to play our part in this by advising businesses delivering a range of sustainable services in the manufacturing and industrials space. Processes that deliver product or energy from waste that would otherwise end up in landfill continue to be high on the agenda for corporate entities.

Our corporate finance clients in 2024 included Biffa, who we advised on their investments in Keenan Recycling and L&S Waste Management. Keenan Recycling uses high-end technology to make the most of any food waste by taking it to anaerobic digestion plants, where it is converted into biogas used for electricity, heat or biofuel for transport.

L&S Waste offers a range of earthmoving services, waste collection, skip and roll-on-roll off (RORO) containers, recycled aggregates and ready mixed concrete and concrete pumping. As well as bolstering Biffa’s low carbon recycling solutions offering, the deal reflects the company’s strategy of increasing the volume of recycled products available to the UK construction industry.

We’re expecting a busy year ahead, with plenty of enquiries from entrepreneurial businesses seeking advice on scaling up and attracting investment. We’ll see ongoing interest from venture capital and private equity who have plenty of capital to deploy, and an increasing push from corporates towards venturing and M&A to gain competitive edge and establish strong, sustainable, circular businesses. 

Read more of our Circular Economy insights here 

Todd Mills Tel: 07583 116442 Email: todd.mills@bdo.co.uk

Chris Parsons Tel: 07741 684298 Email: chris.parsons@bdo.co.uk

The energy transition is impacting every aspect of manufacturing as the UK remains committed to its pledge to reach net zero emissions by 2050. The areas to address are complex and multi-faceted, with colossal investment required to meet goals.

Starmer’s government has declared clean energy as one its top two “missions” alongside economic growth. This framing is providing confidence in stable policy to support big investment decisions. Labour promised £7.3bn for a new “national wealth fund” intended to help five energy-intensive industries deal with the transition to net zero: steel, ports, gigafactories, green hydrogen and carbon capture.

The £2.5bn war chest established to support the transition to “green steel” in the UK is one such example, which is on top of the £500m provided to Tata Steel to help build a less carbon-intensive electric arc furnace. The Chinese owners of British Steel continue to negotiate a deal which is muddied by the threat of further job losses in the industry. Electric arc furnaces have the ability to recycle scrap steel using clean energy in contrast to blast furnaces that rely on coal, but they employ fewer people than traditional blast furnaces.

Further initiatives are in the pipeline — Whitehall are discussing the creation of a national “direct reduced iron” plant to make iron from ore, potentially using green hydrogen, which would require the involvement of several steel companies.

The Government’s mission to “Make Britain a clean energy superpower” requires huge investment in the Grid to both strengthen and decarbonise it. The UK Grid has not been built for decentralised production, offshore wind, intermittent production, nor the sheer capacity required as demand increases exponentially.

The energy transition is expected to result in a 50% increase in demand for electricity by 2035, so can only be effective if the supporting infrastructure is in place. National Grid laid out plans for a £54bn upgrade, which will grow the grid five-fold — (partial) nationalisation and high levels of private financing will be required.

In terms of strengthening the Grid, there is high demand on pylons, transformers and switchgear, with lead times now extending to years. And for decarbonising the Grid, manufacturers need to address the need for battery storage, for wind, solar and EV charging infrastructure. Opportunities for manufacturers and industrials services companies to supply, install and maintain & service equipment are significant. 

Proposed reforms to cut red tape and replace the Grid connections system are seen as key to the government’s delivery of Clean Power 2030. The plan to fast-track connections of renewable power and storage to the Grid is estimated to have the potential is estimated to bring forward £200bn of private investment.

There is already a great deal of investment and M&A taking place across the market landscape. For example, we recently advised LDC on its investment in Power Saving Solutions, which provides high performance battery storage units and hybrid power systems for commercial use. LDC’s support will help Power Savings Solutions solidify its leading position in the growing battery storage industry, supporting its organic growth strategy underpinned by product development and diversification into new end markets.

A further example is STAR Capital’s acquisition of GenAir.  GenAir is the UK’s largest specialist compressed air system rental company which offers a zero / low emission fleet which meets or exceeds low emission zone limits (such as ULEZ) encompassing electric, hybrid and low emission diesel compressors.

And in the home energy sector, we continue to advise Hometree on its roll-up of renewables installation businesses, including The Little Green Energy Company, IMS Heat Pumps and GreenGenUK. Hometree offers renewable installations, finance, servicing and maintenance for home energy hardware to help homeowners transition to low-carbon living.

M&A opportunities will continue to be diverse and plentiful to support expansion of the Grid’s capacity, accelerate the transition to renewable energy, and lower the cost of energy for businesses — and secure long-term economic growth for all.

Read our report on the Wind Energy sector and our Renewables Annual Report

Rustem Zagretdinov Tel: +44(0)7788 474991  Email: rustem.zagretdinov@bdo.co.uk

David Bevan Tel: +44 (0)7814 523 901 Email: david.bevan@bdo.co.uk

Despite the challenges faced by the industry, deal volumes in Food and Drink remained steady in 2024 as larger corporate buyers looked to consolidate and benefit from economies of scale. Consumer trends also fuelled deal activity, with health-centric foods high on customer agendas.

According to ONS statistics in December 2024, food and drink manufacturing inflation remained steady at 2% year-on-year. However, some sub-sectors have experienced greater levels of inflation than others. Olive oil, chocolate and butter all exhibited double-digit inflationary figures, fuelled by high commodity prices, whereas frozen seafood, pizza and dried meats saw prices fall.

There were further cost increases for businesses with rises to National Insurance and minimum wage announced alongside recycling reforms which have impacted food and drink manufacturers more than some other sub-sectors.

Manufacturers were unable to look oversees for an answer to the continuing domestic pressures, as exports to EU countries fell by 10.2% in the first 9 months of 2024, according to the Food & Drink Federation’s Trade Snapshot Report. This was largely driven by a reduction in the export of alcohol with the value of food and non-alcoholic beverage exports holding steady, despite a 16.3% decrease in export volumes.

Additionally, despite a continued trade surplus of food and beverages to the United States, the UK’s third largest market, American-bound exports fell even before the impact of potential trade tariffs against UK businesses.

In positive news, the UK signed up to the Comprehensive and Progressive agreement for Trans-Pacific Partnership (CPTPP) in December. The 12 signatories of the CPTPP, who are mostly based in the Asia-Pacific region, will enjoy tariff-free trade in certain markets, as well as improved export terms and quicker border processes for their products. This will especially benefit businesses who acquire food ingredients from overseas, as the 11 other CPTPP signatories represent the second largest seller of ingredients to UK businesses, behind the EU.

The Food and Drink sector was the second most active of all manufacturing sectors in 2024, representing 13% of total deal volumes. Economic factors were a driving factor behind many of these acquisitions, as businesses sought to enjoy the benefits of economies of scale, whilst evolving consumer preferences also played a significant role.

The continued focus on health products drove several transactions including the investor buyout of The Tofoo Company, a manufacturer of tofu and tempeh, for £37m. KPS Capital backed an investor buyout of Primary Products Investments from Tate & Lyle, for $350m. Primary Products Investments produce food and industrial ingredients made from plant-based, renewable sources.

The attraction of businesses focused on the no or low alcohol products has also been evident, most obviously with Carlsberg’s acquisition of Britvic for £3.3bn. Niche soft drinks companies founded in recent years are growing fast and attracting interest from suitors. For example, Bridgepoint-backed Vitamin Well, which specialises in sport and health beverages and protein bars, tripled its EBITDA in the last three years to reach €150m, with Cinven recently taking the reins as lead investor.

As well as shifting preferences towards wellness, the pet arena remains very active as pet food brands consolidate positions in a fast-growing market. Deals taking place during summer 2024 included the acquisition of Thrive Pet Foods by Swedish consortium Petbuddy Group. Thrive is a well-established brand in fast-growing freeze-dried treats alongside traditional cat and dog food.  Private equity is equally keen on the pet market, for example Inflexion sold Lintbells, a UK-based pets supplements business to Vetnique Labs, which is backed by Gryphon Investors.   And Butcher’s Pet Care, a UK-based premium dog food manufacturer was acquired in August by Inspired Pet Nutrition, backed by CapVest. 

We are expecting another busy year ahead for M&A.

Read more of our Food and Drink insights here

John Gethen Tel: 07800 951 871 Email: John.Gethen@bdo.co.uk

Eleanor Fearne Tel: 07929 058581 Email: eleanor.fearne@bdo.co.uk

2024 was an active year for M&A deals in the Packaging & Materials sector. We are at an exciting point in industry where innovation investment is high and M&A appetite is strong set against significant legislative and operational changes. 

Packaging & Materials was one of the top performers for M&A in 2024, seeing 85 UK deals in 2024, a rise of 18% compared with 2023. 

Taking the limelight in 2024 was the ongoing surge in global mega deals, including the $17.7bn bid for Berry by Amcor, the £7.1bn takeover of DS Smith by International Paper and the proposed $6.7bn acquisition of Pactiv Evergreen by Novelex. This follows the $23.3bn acquisition of WestRock by Smurfit Kappa Group in 2023. 

Consolidation clearly remains a key strategy for corporates bringing scale, operational efficiency, and market coverage, strengthening offering and enhancing geographic reach. Further benefits of combining include pooling resources to accelerate production innovation and address mutual sustainability solutions. 

Although the mega deals are a great indicator of M&A sentiment in the industry, there remains a fragmented market landscape, with pockets of innovative technologies and new entrants. Scale is important but equally many opportunities exist to strengthen innovation and sustainability capabilities with strategic M&A. 

Cross-border M&A is a strong feature of the market. For example, BDO advised on two recent deals with the sale of Clifton Packaging, to Italian food packaging business Carton Pack, a portfolio company of A&M Capital Europe, and the sale of Offset Print & Packaging, a leading designer and manufacturer of bespoke printed cartons to Alzamora Group, headquartered in Spain.

For Carton Pack, the acquisition of Clifton strengthens its footprint in flexible packaging, expands into the attractive snacks and protein end-markets and establishes a robust presence in the UK market. Alzamora gains increased production capacity and access to new markets and key sectors through its acquisition of Offset, in addition to synergies between the group’s three production plants.

We expect to see the continuation of the consolidation trend into 2025. Areas of particular interest include direct-to-consumer packaging, such as corrugated boxes and labels, companies that offer temperature-controlled packaging for sensitive goods, while companies that can offer sustainable packaging solutions will also attract investors.

We anticipate an increase in product portfolio reviews as groups realign their offering towards more sustainable solutions and regulatory changes coming into force such as the EPR legislation.

What will be the successful products of the future? This is keenly debated. Currently, regulations are driving the industry towards materials that are perceived to be more sustainable and lightweight. The impact has been a trend towards paper and fibre-based products, which appear to meet the brief.  Whether the infrastructure will be in place to ensure materials are recycled correctly remains to be seen. Meanwhile, alternative substrates are emerging and becoming increasingly available but plastic is expected to continue as the dominant substrate for the foreseeable future. 

In summary, 2025 is shaping up for plenty of innovation, while businesses will need to balance the effect of the EPR roll out and its impact on the supply chain. We expect a steady continuation of deals in the space, with businesses adopting M&A strategies to optimise market position, economies of scale and product innovation. 

Read more of our Packaging sector insights here 

Alan Chan Tel: 07800 682871 Email: alan.chan@bdo.co.uk