Mergers and acquisitions in Manufacturing Automation for 2016 goes into the books as the year of the big deal. While volume overall was soft (indeed back to 2010 levels), average transaction value was up substantially as the oligopolies focused on capturing market share and extending reach through large, single transactions. Q3 specifically produced an absolute dearth of transactions with only three the entire quarter. Subsequently, Q4 recovered to more normal levels (a far from stellar 11 transactions), but the damage was done and 2016 has now gone down as one of the worst M&A performances in manufacturing automation in recent years, with only 37 transactions (compared to 60 in 2013), and the third consecutive year of declining transaction volume.
While this is perfectly consistent with the M&A market as a whole (see North American Technology M&A Activity chart below), we attribute the decline in M&A for Manufacturing Automation to a few things:
1. Limited target availability
2. Poor buyer health of some traditionally active acquirers
3. Manufacturing (and thus manufacturing automation) is mature and slow growing market.
PLM once again led in total transactions (well over double other sectors) driven by Synopsis and Dassault Systems, while Accenture, SAP, Descartes and Salesforce dominated their respective sectors with the vast majority of transactions. Of the 37 total transactions, over half were executed by these 6 companies, indicating that most companies have moved from land grabs and strategic market shift to more tactical “tuck in” acquisitions. Having said all this there are a few technology areas that remain hot. IoT in a variety of forms (see our new M&A in IoT whitepaper) and analysis (mechanical and electronic) especially showed resiliency and consistency throughout the year. Systems integration as a sector, while not highly acquisitive (with one notable exception) had outstanding growth and is evolving rapidly.
But 2016 will be known most as the year that brought some big moves, as Oracle bought NetSuite, Siemens bought Mentor (2017 close), PTC added to their IoT strategy with Kepware, and SAP bought in IoT infrastructure in a big way (including PLAT.ONE among others) all significant for both size and strategy.
What does this mean to companies considering a sale today, or perhaps looking to buy? As usual the discussion comes down to value. Companies looking to be sold, that are in attractive growing markets and have established a track record of customer demand as exemplified by revenue scale, growth and testimonials are still in the driver seat as good acquisition targets are hard to find. These companies can demand and receive exceptional multiples from cash rich, large companies looking for growth and expansion into hot new markets.
In the longer run, and from a buy side perspective, if the lack of demand continues into 2017, this could be a good time for companies to selectively acquire lower performing assets at prices more reasonable than have been recently demanded. There will be a class of company that has held back from selling, while attempting to turn around, or establish growth, that will now be ready to transact rather than ride out the next economic cycle. Of course, the operative word here is “selective.” While there are assets in the form of technology and manpower, plus market position to be had in these acquisitions, there is a reason that these companies have not yet become successful, and paying the right price for acquired value is always a challenging negotiation.
For more detail behind Mergers and Acquisitions in Manufacturing Automation please download a copy of the complete white paper on Mergers and Acquisitions in Manufacturing Automation 2016 .