Industrials & chemicals M&A gathers pace | White & Case LLP International Law Firm, Global Law Practice
Industrials & chemicals M&A gathers pace

Industrials & chemicals M&A gathers pace

Corporate repositioning and tax reform are two key trends driving M&A in the sector

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The US industrials & chemicals sector, which includes manufacturing as one of its subsectors, has been a rich source of deal flow over the last 18 months. M&A volume reached a record high in 2017, with a total of 949 deals announced. Activity has continued at this pace throughout the first half of the year, with US$73.6 billion worth of deals, an 80 percent increase in value compared to H1 2017.

 

Top industrials & chemicals deals
H1 2018

1: Wabtec Corporation agreed to buy GE Transportation from General Electric for US$11.1 billion

2: Tenneco agreed to buy Federal-Mogul for US$5.4 billion

3: WestRock Company agreed to buy KapStone Paper and Packaging Corporation for US$4.9 billion

    
    

80%
Percentage increase in industrials & chemicals M&A value compared to H1 2017

 

Corporate maneuvering

Traditional corporate maneuvering has prompted a series of transactions, as large industrial groups refine their strategies, divest non-core entities and acquire targets that strengthen their core business lines. General Electric's chief executive, John Flannery, for example, has laid out his intentions to overhaul the conglomerate and scale down the business to the three core industry verticals of power, aviation and healthcare.

This has resulted in the sale this year of GE's transportation division, which makes train engines, to US rail equipment manufacturer Wabtec for US$11.1 billion; and the divestiture of the GE distributed power business to PE firm Advent International for US$3.3 billion.

Altra Industrial Motion, an electromechanical power transmission and motion control products manufacturer, meanwhile, acquired a portfolio of four companies from Fortive's automation platform for US$3 billion, in support of its strategy to widen its offering across the transmission supply chain.

 

US$73.6 billion
The value of 471 deals targeting the US industrials & chemicals sector in H1 2018

 

Tax breaks

The Trump tax reform package has proven beneficial for manufacturers too. In addition to the boost to profits from lower headline rates, the capex-heavy manufacturing industry has received a lift from reforms that allow for the immediate expensing of capital assets for up to five years, with reliefs tapering off after that period, as well as the facilitation of immediate depreciation deductions.

Prospects for M&A activity in manufacturing through the rest of the year are positive. Labor Department figures to the end of Q1 2018 show that the sector has added 232,000 jobs over the last year. Meanwhile, recent tax reforms have freed up cash for investment and the ongoing trend of technology convergence will continue to open up opportunity to build new revenue streams and service lines around core product lines.

 

Click here to read the full magazine
Navigating change: US M&A H1 2018

 

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