M&A in machinery sector stumbles as high valuations deter deals

Many companies in the sector struggle with portfolio misalignment and inefficient resource allocation.

The machinery and equipment industry remains highly fragmented, making it a prime candidate for consolidation through M&A.

In a report, Bain & Company noted many companies in the sector struggle with portfolio misalignment, inefficient resource allocation, and growing pressure from activist investors.

A major barrier to M&A in this sector has been high valuations and increased capital costs, leading many companies to hesitate in making acquisitions.

However, the industry presents significant opportunities for strategic acquisitions due to the high number of small and mid-sized companies operating in fragmented markets.

Companies that take a proactive approach to portfolio reshaping through M&A are better positioned to drive growth and innovation.

Bain & Company cited several industry leaders who have successfully used M&A to transform their businesses, with Emerson, Hitachi, and Carlisle being three prime examples.

Emerson transitioned from a diverse portfolio to a sharp focus on automation and industrial software, executing $60b in deals over three years, including its $8.2b acquisition of National Instruments.

Similarly, Hitachi, historically known for its highly diversified portfolio, strategically transformed by divesting non-core businesses and investing in high-growth sectors, such as digital engineering and energy transition.

Carlisle, once a highly diversified company, used M&A to realign its portfolio, focusing on construction products.