Dougal Baxter
Deal Advisory Partner - Transaction Services
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Roger Buckley
Deal Advisory Partner - M&A
The Manufacturing & Engineering industry has seen encouraging levels of deal flow in 2024, despite uncertain market conditions.
We advised on some 50 deals in the UK Industrials market during 2024, across a wide range of sectors from Engineering to Packaging, to Pet Food.
The sector has shown remarkable resilience in the face of rising costs, labour shortages and geopolitical tensions. These headwinds have continued with the latest Budget announcing further rises to Employers' NI costs, increased minimum wage levels, on top of the proposed employment law changes. The reaction has been a slump in business confidence, as well as reduced recruitment intentions and dampened immediate growth prospects.
Despite these headwinds, M&A appetite remained strong in 2024, with substantial PE ‘dry powder’ and overseas corporates continuing to be attracted to the UK. We have also seen a convergence in valuation expectations between buyers and sellers.
The themes of Industrial automation and Sustainability continue to rank highly in M&A considerations and are featured across many BDO deals.
Industrial Automation addresses key issues in manufacturing, including labour shortages, ageing skilled workers, supply chain security and the fundamental need to manage price inflation and realise efficiencies to protect margins. There’s rising interest in automation across the sector and acquirers are building capability to meet demand.
The sale of Torus Technology Group to Industrial Physics was a key deal in 2024, bringing a wider range of test and measurement equipment and metrology services to the group. We also advised Mpac Group on the acquisition of CSi Palletising, a provider of turn-key automation solutions, specialising in end-of-line systems.
Sustainability has become an integral role of every Industrials deal we see. It is a theme that touches all segments of the industry and acquisitions are playing a key role in positioning businesses for the future. It is clearly seen in Packaging industry which is evolving fast as businesses look to deliver differentiated products and services to customers and consumers, while keeping up with regulatory reforms which are largely focused on improving sustainability.
We advised on the sale of Clifton Packaging Group, an award-winning manufacturer of flexible packaging films for the food sector, to Cartonpack Group. Clifton has a firm emphasis on recyclable films and expertise in resealable pouches, positioning it as a key player in sustainability packaging solutions. Following acquisition, Clifton is positioned to help meet the rising demand for high-quality, sustainable packaging, sharing expertise and capabilities with the wider group.
Looking ahead to 2025, we expect Industrial Automation and Sustainability to continue playing a key role in M&A deals. Further emerging themes will include digital transformation and the application of AI and augmented reality within businesses, alongside restructuring of supply chains and the evergreen management of macro factors, such as regulation, labour availability and cost.
The Industrials sector is perennially resilient, and we expect deal flow to remain so. Despite the changes to Capital Gains Tax and Business Asset Disposal Relief owners are pressing on with plans regardless. According to the most recent Make UK /BDO survey, there is a marked shift from “don’t know” responses to “yes/no” plans, suggesting that many business leaders are now galvanising strategies.
The survey reveals that a third of UK Manufacturing businesses are considering a sale of all or part of their business in the next three to five years, with a quarter likely to seek private equity investment.
Two of our Midlands sales were to US PE houses in 2024 – the sale of Torus Group to KKR-backed Industrial Physics, and the sale of Utopia Tablewear to Steelite International, a portfolio company of another US PE house, Arbor Investments. Both deals demonstrate our ability to attract US buyers and the continued appetite of US PE-backed businesses for exciting and dynamic companies.
We expect to see an increase in PE transactions in the sector, with many attracted by the vast opportunities in advanced manufacturing and the appetite of business owners to exit, de-risk or seek growth.
For more insights into the market, read our H1 2024 Manufacturing Deals Review and look out of the release of our 2025 edition coming soon.