Five Trends Driving Manufacturing M&A in 2023
Mergers and acquisitions (M&A) activity in the manufacturing sector has been on the rise in recent years. With the world still recovering from the COVID-19 pandemic and the global economy picking up pace, 2023 is expected to be another year of significant M&A activity in the manufacturing sector. Here are our five top observations that are fueling transactions in 2023.
- Industry Consolidation
One of the biggest M&A trends expected to continue in 2023 is industry consolidation. This has been a feature of the manufacturing sector for a number of years. With the increasing cost of research and development, along with a highly competitive market, many companies are looking to merge with or acquire other firms to gain a competitive edge. This trend is expected to continue in 2023, with larger companies seeking to acquire smaller, niche firms to expand their offerings and increase their market share. Consolidation enables companies to leverage overhead resources (key in a scarce labor market) and scale for growth cost-effectively.
- Digital Transformation
Another key trend expected to drive M&A activity in the manufacturing sector in 2023 is digital transformation. The COVID-19 pandemic accelerated the shift towards digital technologies, and many manufacturing companies are now investing in digital solutions to improve their operations and increase their competitiveness. This is expected to drive M&A activity as companies who are at the top of their game with deep use of digital seek to acquire similar companies and leverage their technology know-how. As with #1 above, digital is key for scaling up cost-effectively.
- Sustainability
Sustainability has become an increasingly important issue for manufacturers and their customers. As consumers become more environmentally conscious, they are seeking out products and services that are sustainable and eco-friendly. This trend is expected to drive M&A activity in the manufacturing sector in 2023 as companies look to acquire sustainable technologies and expertise to improve their environmental performance and meet the demands of their customers. The “E” of ESG is evolving as a key compliance issue, especially for T2 and T3 suppliers who must provide documentation to customers of their “E” initiatives – deep into the supply chain.
- Reshoring
The COVID-19 pandemic exposed the risks of relying on global supply chains, and many manufacturers are now looking to re-shore their operations. This trend is expected to drive M&A activity in the manufacturing sector in 2023 as companies seek to acquire capacity in their home market or nearby regions to reduce their reliance on overseas suppliers. Locating closer to markets/customers shortens delivery times.
- Industry Diversification
Finally, another key trend expected to shape M&A activity in the manufacturing sector in 2023 is industry diversification. Many manufacturers are looking to expand into related industries to diversify their revenue streams and reduce their reliance on any one market. This trend is expected to drive M&A activity as companies seek to acquire firms in related industries to expand their offerings and increase market share.
Key takeaways
2023 is expected to be another year of significant M&A activity in the manufacturing sector. Industry consolidation, digital transformation, sustainability, reshoring, and industry diversification are all expected to be key drivers of transactions. Companies that can successfully navigate these trends and capitalize on M&A opportunities are likely to emerge as winners in the years ahead.
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Jennifer Clement is an executive sales and marketing leader specializing in value creation for the C-suite. In her current role at CLA, Jennifer collaborates on strategy with executives of global manufacturing and distribution companies to accelerate results. Previously Jennifer served as a Global Business Acceleration Leader for Complete Manufacturing and Distribution (CMD). During her time with CMD, Jennifer lived and worked in Asia from 2015-2019. Prior to CMD, she spent 10 years in senior care technology. Jennifer started her career at Johnson Controls (JCI) and spent nine years in leadership roles; followed by five years at Rockwell Automation (ROK) leading c-suite strategy and marketing operations.
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