3 minute read 16 Apr 2018
old and new

How technology bolsters industrial companies’ M&A outlook

By

Steve Krouskos

EY Global Vice Chair – Transaction Advisory Services

Driving growth and investment priorities for global EY TAS. University of Florida alumnus. Son, husband and father of four.

3 minute read 16 Apr 2018

Our 2018 mergers and acquisitions report shows portfolio transformation helping industrial companies ride the wave of market disruption. 

Portfolio transformation emerges as a dominant theme our mergers and acquisitions report, the Global Capital Confidence Barometer for industrial companies. As they prepare themselves for medium- to long-term growth, 73% of industrial executives indicate that portfolio transformation is the leading priority on their boardroom agenda. Seventy-two percent plan to divest operations within the next year. Assets that are underperforming or at risk of disruption are most likely to be divested. Over the last three years, 29% of industrial companies have increased the frequency of their portfolio reviews, with one-third of those who say they have increased the frequency of reviews citing threats from digitally enabled competitors and startups as the reason.

Divestments

71%

identified an at-risk or underperforming asset to divest during their most recent portfolio review

Portfolio transformation

73%

say that portfolio transformation is top of the boardroom agenda

Industrial companies keen on use of RPA, AI, big data and analytics

Many industrial companies have been in the forefront of adopting technologies such as automation in manufacturing. In general, industrials are ahead of the global pack when it comes to considering newer, digitally driven technologies such as robotic process automation (RPA) and artificial intelligence (AI). In fact, industrial companies are significantly more likely to identify AI and RPA as priority technologies than the global average (57% vs. 46% of global companies). These technologies are affecting manufacturing processes profoundly as leaders implement automation to make operations more efficient and to stay competitive, and are becoming more scalable, with solutions available at lower price points. Meanwhile, a quarter of industrial companies (24%) identified cloud computing and big data as top technology priorities.

M&A outlook remains positive in spite of increased competition for deals

However, industrial companies continue to have a confident outlook on the M&A market, with 87% describing it as improving. This confidence is holding strong, even in the face of growing challenges such as increased competition from private equity funds and corporate buyers. When industrials have chosen to walk away from deals, as 74% have in the past year, competition and disagreement on price have been the leading reasons (cited by 53%), followed by regulatory and antitrust concerns (25%). In spite of these challenges, a majority of industrials expect their deal pipelines and deal completion rates to increase. Sophisticated methodologies to source potential targets will support this growth, along with evolving due diligence techniques and analytics to assess planned acquisitions.

Appeal of cross-border deals to increase in response to uncertainty

Industrial executives predict a rise in cross-border M&A over the next 12 months. Political uncertainty and geopolitical tensions, cited by 93% as the greatest near-term risk to the growth of their business, may be fueling interest. Cross-border deals allow industrial companies to operate in multiple countries, providing flexibility when trade policies become restrictive. They can also support co-location of manufacturing closer to key customers.

Global Capital Confidence Barometer 

Explore our latest M&A report.

Read more

Summary

Industrial companies are able to maintain competitive M&A thanks to portfolio transformation and automation. Looking ahead to the next 12 months, industrial companies are significantly more likely to identify AI and RPA as priority technologies than the global average (57% vs. 46% of global companies).

About this article

By

Steve Krouskos

EY Global Vice Chair – Transaction Advisory Services

Driving growth and investment priorities for global EY TAS. University of Florida alumnus. Son, husband and father of four.