Manufacturing M&A rebounds despite continued economic challenges

UK manufacturing M&A activity grew by 11% in 2024, rebounding to levels last recorded in 2022, despite the continued pressure of rising costs, labour shortages and geopolitical tensions, according to accountancy and business advisory firm BDO.

BDO’s Manufacturing Deals Review reveals that 782 UK manufacturing deals were completed in 2024, up from 707 deals reported in 2023. Despite this buoyancy, the sector faces challenges as businesses implement the rises in employer NI costs and minimum wage levels and prepare for the proposed employment law changes.

Analysis shows that deal activity slowed somewhat in the first half of 2024 but gained momentum following the Autumn Budget, with 475 deals completed in the latter six months. Additionally, the findings show an urgency for deal completions in view of anticipated changes to Capital Gains Tax and Business Asset Disposal Relief. Furthermore, there was an increasing interest from entrepreneurs considering exiting both their ownership and the UK.

Businesses in the engineering services subsector were the most prolific deal-makers, seeing a 26% increase in activity and representing almost a third (32%) of all completed transactions for the year. This was followed by businesses in the packaging and materials sector, which saw deal volumes increase by almost a fifth (18%) and accounted for 11% of all completed transactions.

Separate research from BDO and Make UK reveals that over a quarter (26%) of UK manufacturing business are considering a sale of all or part of their business within the next two years. This increases to over a third (35%) across the next three to five years, suggesting a positive shift in M&A sentiment as many business leaders look to implement their strategies.

Roger Buckley, UK industrials M&A partner at BDO, said: “Last year proved to be a busy year for manufacturing deals but upcoming policy changes are now weighing heavily on business confidence, recruitment plans and growth intentions. Many businesses will be hoping for a boost in sentiment when the Industrial Strategy is announced later this year.

“Looking ahead we expect to see a solid year of M&A activity. Valuations are holding firm and there remains a large cohort of cash-rich investors who believe in the long-term prospects and broad opportunities for growth within the sector. These businesses now need government to offer incentives that will support their investment in new technologies and onshoring or reshoring operations.”

BDO’s full Manufacturing Deals Review is available to read here.