Like most industries, the manufacturing sector has been hit by stagnant deal flow. Now, the tides seem to be turning. One investment banker tells Mergers & Acquisitions why there is a developing sense of urgency from the buyers in the space.

“Last year, the beginning part of the year, you’ll remember manufacturers in the lower middle-market were stung a little bit due to the rapid increase in freight and raw material costs, which is now moderated and price increases have kicked in to help cover costs,” says Phil Pizzurro a senior managing director of M&A at Richardson, Texas-based investment bank Generational Group. “I’ve seen with my clients that this has led to the adoption of digitizing the operations and implementing ERP [enterprise resource planning] systems so that manufacturers have real-time data regarding their input cost, inventory value and production efficiency and are able to make a driven decision based on that.”

While firms in medical equipment manufacturing and chemicals have avoided a slowdown in the manufacturing space, other subsectors are seeing deals accelerate from the adoption of industry 4.0 technology and ERP automation.

This increase in the adoption of industry 4.0 has been spurred on by a couple of drivers. First, there remains difficulty in finding and filling positions and retaining talented employees. As a result, there is a need for increased automation and digitization. On top of that, the localizing of supply chains and diversification amongst supply base is still critical in the manufacturing space and is spurring M&A activity in the industry, says Pizzurro.

So far in 2023, there has been a litany of deals involving in similar strategies. Pritzker Private Capital-backed Aurorium has acquired Centuari Technologies, a tech-driven manufacturing firm based in Pasadena, Texas. The deal not only adds additional market options to the firm’s portfolio but adds services and differentiated manufacturing services with a track record of innovation and growth. Such capabilities include both fixed-bed and agitated reaction systems, providing specific expertise in high-pressure and high-temperature processes, as well as a strength in high-efficiency product separations to drive high product purity.

Let me know how you think digital transformation can M&A dealmaking in the manufacturing space at [email protected]

Cole Lipsky