Global M&A trends in industrials and services: 2024 mid-year outlook (2024)

Industrials and services deal volumes and values, 2019-H1'24*

Note: To facilitate meaningful comparisons with prior half-yearly periods, the data for the first half of 2024 (H1’24*) covers the first five months of the year, extrapolated to represent a six-month period. Refer to the “about the data” note below for further information.

Sources: LSEG and PwC analysis

• Deal activity in A&D is expected to increase in the second half of 2024 and into 2025. M&A will likely focus on small to midsize acquisitions rather than larger deals as companies look to address strategic and labour talent gaps and secure supply chains and production capacity through vertical integration. The space economy continues to become a larger share of global A&D revenues. We expect M&A activity to support growth in vital A&D segments such as communications, logistics and transport. Additionally, the industry’s digital transformation is driving continued interest and investment in acquiring skills and capabilities in digital, AI and machine learning technologies.
• In the first half of 2024, interest rates, supply chain and production issues, and competition for talent all slowed M&A activity. However, we see companies taking action to overcome these challenges and making investments through smaller acquisitions and strategic portfolio reviews. Additionally, companies will look to divest non-core assets to strengthen balance sheets and reduce their debt burden, leading to an increase in M&A activity. With debt markets lending again and interest rates stabilising, the stage is set for a boost in M&A activity in the second half of 2024 and into 2025.
• Given the continuing war in Ukraine and conflict in the Middle East, defence spending is expected to increase, driving dealmaking focused on innovation and the transition to agile platforms as well as on replenishing dwindling stockpiles. Although cross-border activity is expected to remain muted due to geopolitical factors, countries prioritising the establishment of secure strategic supply chains may look to make investments in other regions to shore up or even expand production. However, increases in government defence spending will need to be balanced with concerns about increased debt.
• The commercial aerospace sector is expected to continue growing in the second half of 2024, which we expect to drive increased M&A activity. We also expect continued activity in the aircraft aftermarket segment, driven by the ageing military and commercial fleets. This will result in greater demand for aftermarket services and capabilities. Aerospace companies have a robust order backlog and are seeing strong demand for their products. We expect companies will look to ramp up production later in 2024 and into 2025.
• Both the aerospace and defence subsectors should benefit from increased government and commercial spending stemming from increased post-pandemic travel and heightened geopolitical tensions, which will drive M&A activity. Private equity (PE) buyouts in the A&D market have been limited, but PE sponsors, under pressure from their investors to realise a return on their existing investments, may be divesting assets in the near to medium term. With debt markets lending again and interest rates stabilising, the stage is set for a boost in M&A activity in the second half of 2024 and into 2025.

• Global automotive M&A volume and value were hampered in the first half of 2024 by high interest rates, political uncertainty and lower consumer demand, especially in the electric vehicle (EV) sector. Despite the challenging conditions, many dealmakers maintained discipline in capital distribution and are now actively seeking talent acquisitions and refocusing on their global footprint. We are optimistic that M&A activity will remain stable in the near term with an increase in the medium term as the evolving business model of the industry leads to potential investments in startups and emerging companies by automotive original equipment manufacturers (OEMs). Strategic alliances in manufacturing facilities (often for EV batteries) and investments in mining companies to secure supply of critical minerals for battery production may also contribute to additional M&A activity.
• Automotive companies continue to focus on digital, software and electrification development to ensure they remain competitive in the marketplace. This is also a key driver of M&A activity, with focus areas ranging from internet-connected cars and safety systems to app-based technologies around EVs and ridesharing services. Further, the consolidation of internal combustion engine (ICE) assets presents an opportunity for increased deal activity in North Americabecause of the region’s continued robust demand for vehicles in this category.
• As in many other sectors, the challenging macroeconomic headwinds negatively impacted automotive businesses; some deals are now being marketed as distressed or restructuring operations. Most potential buyers are strategic buyers who hope to take advantage of synergies rather than private equity investors with specific return targets.
• Companies also continue to seek divestitures of non-essential assets in their portfolios. However, it’s critical to consider the potential impact of upcoming global elections on deal activity. Companies may choose to expedite or postpone M&A endeavours because of uncertainty about future policy direction. This uncertainty should ease by the end of the year, once the outcome of key elections in the UK and US are known.
• Overall, automotive deal volumes are expected to remain stable over the next six to 12 months as the sector adapts to an electric future and companies maintain their existing ICE portfolios in markets with slower EV adoption rates. This includes continuing to invest in EVs and connected automated shared electric (CASE) assets, taking steps to strengthen the distressed supplier base, and expanding into global markets through M&A. Companies striving to implement sustainability and carbon emissions initiatives may also pursue acquisitions to comply with regulations and meet consumer demands.

• We remain optimistic about engineering and construction (E&C) deal activity in the second half of 2024 and into 2025. Decreases in interest rates may spur investment, particularly in the residential construction space, which is already showing signs of recovery. As inflationary pressures begin to ease and with interest rates expected to decline, we believe the second half of the year may provide an opportunity for players within the E&C sector to capitalise on lower valuations and create value through acquisitions.
• During the first half of 2024 businesses were hesitant to deploy capital given the macroeconomic and geopolitical environment. These factors, along with increased regulatory scrutiny and upcoming global elections, continue to complicate cross-border deals. Companies are navigating these complexities by focusing on domestic consolidation, niche market expansions (including in areas such as the transition to green energy) and potential strategic divestitures.
• The commercial construction industry continues to face a more difficult situation with stagnant projects, squeezed profit margins, impending refinancing deadlines and the potential risk of debt defaults. The trend of workers preferring remote or hybrid work results in decreased demand for office space. Newer office buildings are more successful at attracting tenants than older ones that require renovations. These uncertainties underscore the significance of making informed decisions when allocating capital for E&C companies.
• E&C firms are adopting AI and digital technologies to enhance productivity, improve customer experience, and streamline operations. Firms leveraging AI for operational improvements, both incremental and transformative, are expected to lead the sector—and companies are looking for digital skills through acquisitions. AI is being used to enhance project management, optimise resource allocation, improve safety standards to increase competitive advantages and further support capital allocation.
• Dealmakers must stay agile and strategically focused to capitalise on emerging opportunities and navigate the challenges ahead. E&C companies continue to innovate, as highlighted by the early adoption of AI and sustainability standards for competitive advantages in initial design automation and product development. Firms with high infrastructure exposure—including engineering services, intelligent transportation, and power and telecommunications—continue to be attractive assets in this environment. Potential policy implications of upcoming elections around the globe will drive decision-making for E&C companies as they consider where best to deploy capital.

• We expect deal activity in the industrial manufacturing sector to ramp up in the near to medium term, driven by increased investor optimism surrounding the sector and more stability in the macroeconomic environment. Hesitant investors may remain on the sidelines until after the outcome of the various elections in the second half of the year, especially given ongoing uncertainty around inflation, interest rates and regulations. The introduction of the Pillar Two tax framework—the levying of a global minimum effective tax rate of 15%—is top of mind for investors as they explore acquisitions abroad. In addition to Pillar Two, R&D tax credits and other government-sponsored incentive programs are important factors in M&A decision-making.
• The rapid pace of technological change continues to propel M&A activity as companies seek to acquire new technologies to enhance their product offerings, improve internal operations and enter new markets. Developments in AI, machine learning, predictive robotics and smart factories continue to drive manufacturing efficiencies in the industrial manufacturing sector.
• Companies conducting internal portfolio reviews to identify poorly performing assets or non-core business segments are now starting to take action to prepare these assets for sale. We expect carve-out divestitures to ramp up in the next few months. To remain competitive, companies should invest time in conducting strategic reviews and preparing for sale so they are ready to take decisive action when the market picture clears. Likely buyers for these assets will be smaller corporate entities, including domestic businesses that wish to expand their international footprint and see an opportunity to do so by acquiring assets being carved out from larger multinational corporations. These divestitures will also fund further capital deployment for strategic M&A investments.
• Decarbonisation and other environmental considerations remain key focus areas for the market. There is heightened interest in manufacturing processes that shift from metals towards more-sustainable raw materials, such as biopolymers and recycled nylons, and fibre-based packaging. Companies continue to thoughtfully develop and refine approaches to sustainability due diligence as part of their investment theses and as potential levers in their value creation plans.
• Despite subdued deal volume in late 2023 and early 2024 compared to the record highs of 2021, improved executive confidence, coupled with profitability growth, supports an uptick in deal activity. Expectations of easing monetary policies and a clearer picture of policy direction after the elections later this year will likely fuel an increase in deal activity in late 2024 and into 2025.

• Deal activity in the first half of 2024 was predominantly led by PE-backed investments and portfolio companies as well as ongoing activity in professional, legal and marketing services. Accounting, tax and advisory services and IT services remain popular areas for investment and roll up consolidation, particularly in the US and Europe.
• IT services and related outsourcing opportunities provide a platform for M&A consolidation, as many companies have yet to make necessary investments in cloud and related technologies. The need for transformation and the investment required to achieve it, are driving potential outsourcing opportunities. Players in this space are looking for scale through M&A acquisitions to take advantage of market opportunities.
• The state of the workforce continues to change, and businesses are focused on talent—from assessing outsourcing opportunities to evaluating the impact of impending retirements across the industry. This is expected to lead to changes in hiring patterns and may create both opportunities and challenges. Companies are focusing on upskilling staff and incorporating technology into their business models, as well as on continuing the search to hire workers with specific skills through acquisitions.
• The customer care and related services subsector is undergoing transformation because of the impact of AI and digital applications and processes. This is especially prevalent in outsourced customer care, an area that was previously handled in emerging markets such as India. With the subsector in the early phases of transformation, this is a hot area for M&A activity as companies seek to acquire (rather than taking the time to develop) AI and digital skills to remain competitive. These skills, along with consolidation in the industry, will determine the winners and losers, and speed of action will be a differentiator.
• Although business services deal volume has been more subdued in the first half of 2024, we expect M&A activity to pick up in the near to medium term. This stronger level of activity will be driven by consolidation (by strategic players looking for scale and through roll-up platforms), influenced in part by the impact from digitalisation and changing workforce dynamics.

Michelle Ritchie is PwC’s global industrials and services deals co-leader. She is a partner with PwC US. Nicola Anzivino is PwC’s global industrials and services deals co-leader. He is a partner with PwC Italy. Nathan Whitley is a director with PwC US.

The authors would like to thank the following colleagues for their contributions: Mark Anderson, Teruhiko Azuma, Akhil Bhushan, Danny Bitar, Felix Buhl, Gabriele Capomasi, Wanfeng Chen, Jennifer Chetty-Feinberg, Rebecca Clayton, Sandie Costa, Matthew Davy, Coolin Desai, Daniel Dipillo, David Fernandes, Monia Giustozzi, Cara Haffey, Mona Hamzah, Motoyuki Hattori, Michael Holland, Michael Huber, Philippe Jordan, Darrell Kennedy, Werner Kinas, Junichi Koga, Jorg Krings, Max Lehmann, Max Livingstone-Learmonth, Ilya Lokshin, Atsushi Matsubara, José Melo Guimaraes, Alex Menghi, Gordon Muschett, Jon Nelson, Martin Nicklis, Naohiro Oya, Alexander Pirrie , Nico Psarras, Günther Reiter, Martin Schwarzer, Reiichi Shoji, Daniel Sipple-Asher, Alessandro Spaghi, Matthew Stanley, Carlos Thimann, Matthew Tombs, Nicolas Veillepeau, Simon White, Jan Wille, Bradley Wood, Malcolm Wren and Ellie Yang.