Acquisition activity to remain sluggish in ’08, new report finds

Industrial Distribution staff -- Industrial Distribution, 8/5/2008 9:18:00 AM

Deal activity in the industrial manufacturing sector remains sluggish and will most likely fall short of the activity level in 2007, according to the PricewaterhouseCoopers LLP report, Assembling Value: Industrial Manufacturing Mergers & Acquisitions Analysis  – Second quarter 2008.  

However, PwC’s report anticipates the manufacturing sector may at least match the number of deals finalized in 2006.

During the first half of 2008, 76 deals were announced. The total value for those deals (with a disclosed value of at least $50 million) was $24.9 billion, which puts 2008 short of the deal value reached in 2007 ($87 billion). 

This is, in part, due to a decrease in large transactions, the report found. The reduction in large deals also contributed to a decline in average deal value, which dropped 21 percent to $328 million. By comparison, the average deal value in the first half of 2007 was $417 million.

“Increased concern over the tightening credit market and an overall global economic slowdown continues to affect trends in total and average deal values for industrial manufacturing targets,” said Barry Misthal, U.S. industrial manufacturing leader at PricewaterhouseCoopers. 

Manufacturing companies specializing in industrial machinery captured 46 percent of deal value announced during the first half of ‘08. Though 21 percent of bidders in 2007 and 30 percent of bidders in 2006 were attracted to fabricated metal products targets, only 15 percent showed interest in this category during the first half of ‘08, PwC’s report stated. But there was an increase in activity for targets in rubber and plastics products.  

Though the overall number of deals involving U.S. targets declined during the first half of 2008, the number of foreign acquisitions of United States companies is on pace to exceed 2006 and 2007 levels. Foreign interest in U.S. companies is expected to remain high because of the weakness of the U.S. dollar, PwC’s report found.

“Due to the fragmented nature of the industrial machinery market, consolidation in this category will account for a significant amount of the deals announced during the remainder of 2008,” said Misthal. “We also expect the pace of industrial manufacturing deal activity to increase as real improvement in economic growth is realized or perceived.”