The strong recent rebound in new orders within the
manufacturing sector was a much needed boost,
but the impact on M&A activity in the coming
months is far from clear.
One of the most respected barometers of manufacturing
activity in the UK – the Markit/CIPS UK Manufacturing PMI
– found that factory activity improved to a two-year high in
September, bouncing back from a 41-month low in July.
The uplift between July and August had already represented
one of the biggest month-to-month jumps since the aftermath
of the global financial crisis in early 2009 and the index
continued to confound leading economists’ expectations
during September.
The survey of purchasing managers at
more than 600 industrial companies
showed that output recovered at
one of the fastest paces on record,
with new orders enjoying one of
the strongest month-to-month
rebounds. Companies reported
solid inflows of new work from
domestic and export customers,
with exports said to be growing
at its fastest pace for 26 months.
Whether this boost for the sector
will continue is hard to say. We
seem to be bombarded in the media
with post Brexit data on a daily basis
and although market sentiment appears
more upbeat than expected, the statistics do
not all point in the same direction.
As a result of this, it is difficult to predict what the impact on
M&A within the sector over the coming months will be.
Our own analysis of data from Experian Corpfin points to a fall
in activity during the month immediately after the referendum
result. In fact, during July there were 140 manufacturing deals
compared to 176 in July 2015.
Again, according to Experian Corpfin, out of the manufacturing
deals involving UK based manufacturers which completed in
July this year, 15% were cross-border transactions involving UK
targets.
This compares to 18.5% during the same period last year. The
20% fall in July manufacturing deals is perhaps also therefore
due to a reduction in interest from overseas buyers.
Having said all of the above, although there has been a
reduction, it is not significant. In fact you could argue that
faced with such uncertainty, the numbers have held up
reasonably well. This trend also looks to be the case when you
look at cross-border deals generally.
Outside of the manufacturing sector, recent
data from Thomson Reuters revealed
that almost 60 transactions totalling
$34.5 billion have been transacted
by foreign companies to acquire
British firms since 23 June. The
figure is lower than the 79
deals completed in the month
leading up to the vote, but
again much higher than
expected.
According to Reuters, the
sectors with the highest
concentration of foreign
takeovers in the past four weeks
were technology, consumer, media
and industrial.
Despite all the uncertainty and the dangers of
reading too much into just one month of economic data,
it appears confidence within the manufacturing sector is
reasonably robust with the sector performing better than
many expected.
At Irwin Mitchell, we have seen M&A activity particularly
contract in manufacturers which are part of the supply chain
to the construction industries.
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