Manufacturing M&A Seen Rising by PwC as CEOs Spend Cash Hoards

Mergers and acquisitions among manufacturers are poised to accelerate, building on the biggest quarter for global deal making since 2007, as companies focus on growth after years of cost cuts, consultant PwC said.

“In terms of deal activity, we’re going to come out of the trough. We’re on the upturn,” said Robert McCutcheon, PwC’s U.S. industrial products leader. “Companies are very much focused on that next stage of inorganic growth and it’s just about timing and when to pull the trigger.”

Low interest rates, “fairly attractive” valuations and corporate cash hoards will buoy future acquisitions, McCutcheon said in an interview. Manufacturers completed $29.4 billion of deals worldwide in the third quarter, 7.3 percent more than the year-earlier total based on deals of at least $50 million, New York-based PwC said in a study released today.

While PwC didn’t identify any companies preparing for acquisitions, some manufacturers are signaling that they’re ready to start buying. Emerson Electric Co. Chief Executive Officer David Farr said this week that he plans $1.5 billion of acquisitions in 2014.

“Companies want to be first movers,” McCutcheon said. “They want to have confidence in making that investment, but they don’t want to be slow to move because that costs money too.”

Favorable deal-making conditions are beginning to outweigh concern over growth in Europe and U.S. budget discord, McCutcheon said. Of the third-quarter deals, six were valued at more than $1 billion.

Increase Investments

Emerson Electric, a maker of automation equipment and pipeline sensors based in St. Louis, plans to increase investment in its businesses to boost growth, Farr said on a Nov. 5 conference call with analysts.

“For two and a half years of really keeping things really tight and looking where things happen, the time is to pivot and to increase our investments,” Farr said.

Companies will remain cautious, preferring to “dip their toes” in the deal market with smaller, less risky acquisitions, McCutcheon said. Emerging markets will also be a focus of companies as they seek to accelerate the pace of revenue growth.

“Some of the early first steps might be a willingness to acquire, but not on a large scale,” he said. “As confidence grows, deal value will grow as well.”

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