Home to illustrious brands such as BAE Systems, Rolls-Royce, Boeing and Dyson, the South West has long been an established hub for innovation, expertise and growth in the Manufacturing and Engineering industry.

Further to our Shaw Reports analysing the Manufacturing and Engineering sector, here is our latest snapshot of the industry for local SMEs:

1) Key Trends

• Price volatility and supply chain disruption as a result of global factors have caused manufacturers to reassess their operations.

• Access to labour and skills still looks to be a key challenge for Manufacturing and Engineering, with companies struggling to find people with the right experience and qualifications to replace experienced retiring staff.

• Firms are frantically increasing their focus on automation, robotics and artificial intelligence as they seek to match and outstrip the systems of their competitors.

• High inflation of raw materials is increasing the input costs for manufacturing firms, leading to the highest insolvency rates in 11 years*.

• By 2050, the UK is legally required to have reduced its greenhouse gas emissions by 100% from 1990 levels. Unsurprisingly, manufacturers are putting more emphasis on sustainability and implementing this into their operations.

• The IoT (‘Internet of Things’) is becoming more prevalent in the manufacturing and engineering industry as firms look to optimise their production and improve efficiency.

• There is an increased focus on on-shoring/near-shoring to eliminate dependency on foreign materials impacted by geopolitical issues.

2) M&A Activity

• Deal activity has been buoyant in the M&E sector in the last year, partly as a result of increased near-shoring. From 1 October 2022 to 31 March 2023 there were 143 M&A deals in the UK manufacturing and engineering sector, with ten of these coming in the South West.

• Several headwinds – rising inflation and the worsening geopolitical situation – mean that the level of M&A activity that has been seen in the last year may not continue. However, confidence is key to dealmaking and the continued demand for M&E means this industry is fairly well placed to ride out these headwinds.

• The recent weakening of the pound is likely to make UK businesses more affordable to foreign buyers. Therefore, in the next period we would expect to see the ratio of UK to overseas buyers become slightly more equal.

• If an owner is looking to exit and the business is performing well, it is important to launch the preparation for a sale process as soon as possible, before current events flow through to the wider economy. Alternatively, a business may consider the opportunity to grow by acquiring a competitor or an organisation that complements and strengthens its existing value proposition.

Rob Starr is a Partner - M&A at Shaw & Co

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Sources

* Make UK Manufacturing Outlook 23Q1 Manufacturing Outlook 23Q1 | Make UK