Strong M & A activity tipped for UK manufacturing barring Budget backlash

If that shadow doesn’t cloud the horizon then strong levels of deal flow are expected across UK manufacturing for the remainder of 2024.

BDO says that M & A activity looks set to gain momentum in the final quarter of the year as long as the political and tax backdrop remains conducive to dealmaking.

The firm’s latest Manufacturing Deals Review shows that in the first half of 2024, 307 deals were completed in the sector across such sectors as engineering services, food & drink, building products and packaging and materials. Of these, 18 per cent were buy-outs, with cross-border deals representing a third of transactions.

Roger Buckley, Deal Advisory partner, Industrials and Manufacturing, at BDO, said: “While overall deal volumes remained relatively steady compared to 2023 figures, we expect to see strong levels of M & A activity over the coming months, with the market keeping a watchful eye on the Chancellor’s first Budget announcement at the end of October.

“Manufacturing remains one of the most resilient sectors, with a wide range of market drivers motivating M & A activity. This includes ESG, with the circular economy becoming a growing feature in manufacturing deals , reaching across all sub-sectors.

“Unsurprisingly, for the third year in a row, the sector has attracted the most circular economy-related investment – accounting for over a third of total deals by volume.”

In 2023, manufacturing saw a 25 per cent increase in circular economy deal volumes, combined with the total deal value soaring to over £400 million of invested capital. The average disclosed deal size increased from £6.7m to £12.2m.

Buckley said: “The correlation between manufacturers making their businesses more sustainable and higher circular economy deal volumes is clear to see.

“More and more UK manufacturers are embracing circularity – a trend that is accelerating due to strong consumer attitudes towards sustainability and investors showing a significant interest in businesses addressing this issue.”

According to a BDO/Make UK survey of more than 200 SMEs in the sector, 40 per cent of respondents believe that operating a circular business model will be more profitable than a linear model, suggesting an increase in manufacturers’ understanding of the economic benefits of circularity.

The survey also showed that more than half of businesses (56 per cent) plan to make circular changes in the next three years, with nearly a third stating that circular or sustainability credentials differentiate them from their competitors.

Rory McPherson, Deal Advisory partner at BDO, added: “Given the pace at which society’s attitude towards sustainability continues to change, it won’t be long before positive environmental credentials are seen as a minimum standard as opposed to a cherry on the top.

“For those who resist change without good reason, the lack of circular and sustainable practices will inevitably become a negative differentiator and dissuade customers from engaging. At the point the customer stops buying, it might be too late. “