Deals Activity: Moderate
Restructuring Activity: Very high
Deals activity in Industrial Manufacturing
- 1. Deals peaked in Q1 2021 (following a pandemic-related slump in 2020) and have now returned to broadly 2019 levels in 2022.
- 2. Private equity interest in the sector is growing, but uncertainty around utility prices presents a challenge for more energy-intensive users prospecting for buyers.
Restructuring activity in Industrial Manufacturing
After two years of pandemic-related disruption, manufacturers would be forgiven for thinking the worst was over. Yet recent rapid rises in the cost of energy, labour and raw materials have continued to batter a sector already navigating the challenges of Brexit and climate change.
Although the sector is broad, several key issues affect most operators:
Importance of liquidity
Cash management will remain the core challenge for many manufacturing businesses, especially as input costs continue to rise. Minimising cash outflow, drawing down existing lending facilities as required and streamlining some operations will be key. Organisations not able to access external sources of funding are at high risk of running out of cash.
Although many firms have taken steps to reduce outflows and cut costs, even those who believe they have adequate liquidity need to act and reduce cash burn to retain sufficient working capital.
Supply chain fragility
Although supply chains are slowly getting back to normal, the pandemic exposed the fragility of global trading links. Businesses that operated with extremely lean stock and/or single supplier contracts are at elevated risk of supply chain failure, posing immense financial cost and operational disruption. Manufacturers must continually review supply chain robustness, managing the need to maintain sufficient raw material inventory while avoiding wastage and tying up excessive levels of working capital.
Many businesses paused capital expenditure projects during the pandemic to reduce cash outflow. As input costs increase and navigating day-to-day operational matters take precedence, it's easy to ignore the need to resume investment activity to improve productivity, quality or capacity. Businesses should consider making targeted investment aimed at delivering bottom-line growth, which may itself be funded through the review and disposal of non-core activities or assets.
Many pre-COVID issues have not gone away either. Brexit remains a further area of uncertainty hanging over the UK economy, along with global trade concerns. Climate change commitments are a core requirement of all manufacturing businesses. Making changes to products or processes will take time, innovation and investment in most cases. With environmental and ethical standards receiving increased public scrutiny, B2B and B2C manufacturers need to have clear oversight of their own activities and those of their supply chains.