After a blistering 2015, the Industrial Markets sector had another very active year for M&A transactions in 2016, similar to the levels seen between 2011 and 2014.
Two of the top 10 deals exceeded US$10 billion, with the target and bidder both stemming from the United States.
“There have been some global factors that affected the market over the course of 2016, particularly at the top end. Despite that, the appetite for deals was very strong,” says Danny Bosker, KPMG Corporate Finance Partner, KPMG in the Netherlands.
“One of the main factors driving M&A activity in Industrial Markets in 2016 was the hunt for technological innovation. Companies recognize that to remain competitive, they need to invest in technology to transform their businesses. Sitting back and waiting is not an option. They need to go out and either develop new business models or technologies, or acquire them.”
The US$7.7 billion acquisition of Siemens’ wind power business by Spain’s Gamesa is a case in point. Gamesa gains from Siemens market-leading position in offshore wind energy, while delivering increased opportunities for Siemens to develop its onshore business.
Looking ahead to 2017, Bosker expects M&A activity to remain high, particularly at the sub-US$1 billion level, and with continuing strong interest from Asia.
His optimism is reflected in the M&A Predictor data. This shows that forward P/E ratios, our measure of corporate appetite for M&A, are expected to rise by 9 percent over the course of 2017 – the second-highest sector increase. This compares to a predicted overall increase of 1 percent globally. The capacity to transact is also expected to increase, with net debt/EBITDA, our measure of capacity, showing a 14 percent improvement over the same period.
“Technology businesses are expected to remain popular targets for acquirers. Another key sector could be environmental technologies – heating, ventilation and insulation, anything to do with CO2 reduction. Interest has been growing quite rapidly over the past year. Combined with increasing interest from Asian buyers in this sector of the market, it looks set to be another strong year for industrial markets deals,” says Bosker.