2024 Outlook

German M&A Trends in Industrial Manufacturing and Automotive

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  • Article
  • 8 minute read
  • 09 Feb 2024

The German Industrial Manufacturing and Automotive (IM&A) industry faced headwinds in 2023, high-interest rates, geopolitical tensions, and cost pressures in labour, materials, and energy prices. Despite these challenges, deal activity improved by 15% in 2023 compared to 2022, though the number of deals remained lower than 2021’s record high. The M&A market has, to a certain degree, factored in these challenges in 2023. However, the main deal activity still centred around small- and mid-sized deals, highlighting that deal makers still exercised caution in their investment decisions while being more selective in investment areas. Corporate buyers dominated the overall deal activity, accounting for 53% of the deals, with most being from Germany (56%). Similarly, most financial investors (53%) were also from Germany.

The industrial manufacturing and business services sectors saw the highest number of deals in 2023. These two sectors together accounted for two-thirds of the overall deal activity in the German IM&A industry. Moreover, the industrial manufacturing sector showed notable growth compared to 2022 and had the highest deal activity increase (35%) compared to the other sectors. On the other hand, the automotive sector witnessed a decline in deal activity, experiencing the biggest decrease among the IM&A sectors compared to the previous year, with 7%.

Your experts for questions

Tobias Blaser, German Industrial Manufacturing and Automotive Deals Leader, Partner, PwC Germany

Tobias Blaser
German Industrial Manufacturing Deals Leader, Partner, PwC Germany
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Sven Heinemann
EMEA Value Creation Driver for Industrial Manufacturing and Automotive, Partner, PwC Germany
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M&A deal activity: 2023 summary

Industrial Manufacturing & Automotive deal volumes, 2019–2023

“Technological advancements such as GenAI, robotics, and predictive maintenance are driving real change in the IM&A industry. Companies will look for tech-enabled targets that will accelerate their technological transformation to stay competitive.”

Tobias Blaser,German Industrial Manufacturing Deals Leader, Partner, PwC Germany

Key themes driving M&A in 2024

Business model disruption

Innovation and technological disruption, such as GenAI, automation, and CASE (connected, autonomous, shared, electric), are among the top topics on business leaders’ agendas. In PwC’s 27th CEO Survey, 30% of German CEOs believe their companies would no longer be economically viable in ten years, unless they reinvent their business model. Thus, investments in technology are becoming imperative for companies. By reviewing their portfolios, companies will identify strategic gaps and continue to invest in capabilities to fill them, either organically or via M&A. We expect to continue to see an increase in technological capabilities-driven deals.

To improve operations, profitability, and free up capital for these investments, companies in the IM&A industry are increasingly reviewing their portfolios to divest non-core assets and focus on growing their strategically core business. As companies divest these assets, this will continue to create opportunities for investors, both PE with substantial dry powder and corporates with strong balance sheets, where these targets meet their M&A strategy.

Labour shortages

The German economy is facing labour shortages, resulting in continued increase in labour costs and a general war for talent. Companies are seeking qualified employees whose skill sets match their current business model but are also searching for essential skill sets to navigate the transformation of their industry.

Thus, companies will use M&A to address these issues in addition to increasingly using talent search professionals. Additionally, companies will look to mitigate labour shortages with higher emphasis and investments in technological innovation around automation and AI.

Small- and mid-size deals

As the global macroeconomic conditions and the interest rate environment set by the European Central Bank (ECB) continue to cast a shadow over the German IM&A industry, investors continue to favour small- to mid-size deals. Additionally, geopolitical tensions continue to create uncertainty. As the valuation gap between sellers and buyers did not close over the past year, business confidence has to improve, and interest rates have to fall before we see an uptick in large deals.

Sustainability

Sustainability will continue to drive M&A due to its impact on value creation, regulatory compliance, and investor demand. Companies continue to assess how ESG issues will affect their industries and business models while looking to mitigate any associated risks or profit from any shifts. If companies cannot organically grow the necessary capabilities, they will consider acquiring or partnering with firms with the required expertise.

“Companies within the IM&A sectors are undergoing major transformation processes. We therefore expect M&A activity to further pick up in 2024 driven by the need for business model reinvention.”

Sven Heinemann,EMEA Value Creation Driver for Industrial Manufacturing and Automotive, Partner, PwC Germany

M&A deal activity: 2024 outlook

2023 M&A activity increased compared to the previous year, this trend is expected to continue into 2024. However, deal activity will also highly depend on the development of interest rates and the wider macroeconomic conditions. Nonetheless, favourable conditions continue to persist, which is expected to lead to M&A opportunities: Financial sponsors have a high level of dry powder available for acquisitions. Additionally, the transformation of business models in the IM&A sectors will drive M&A activity. M&A in the business services sector will be driven by companies using artificial intelligence to transform the industry and address the labour shortage issue. The M&A activity in the aerospace & defence sector will continue to grow as companies will have additional capital from governments to invest in new technologies and innovation. The push towards more environmentally friendly buildings and housing will increase M&A activity in the engineering & construction sector.

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