Manufacturing M&A expected to increase although all eyes on October Budget

Dealmaking in manufacturing is expected to gain momentum in the final quarter of the year, although reports of a potential rise in capital gains tax in October's Autumn Budget could hit sentiment.

That's according to accountants BDO LLP, which has put out its latest manufacturing deals review. The firm says M&A activity looks set to gain momentum as long as the political and tax backdrop remains conducive.

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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," he added.

In the first half of this year, 307 deals were completed in the sector, across engineering services, food and drink, building products and packaging and materials.

Of these, 18% were buy-outs, while cross-border deals represented a third of transactions (34%).

Buckley noted that for the third year in a row, manufacturing attracted the most circular economy-related investment (where resources are reused or recycled), accounting for over a third of total deals by volume.

Last year, manufacturing saw a 25% increase in the number of circular economy deals with the total deal value soaring to over £400 million of invested capital.

In addition, the average disclosed deal size increased from £6.7 million to £12.2 million.

"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," said Buckley.

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."