Analysis

Industrials M&A update: Q1 2017

While the specialty chemicals and homebuilding sectors are seeing growth, uncertainty endures within the infrastructure and automotive sectors. This Industrials M&A update provides Deloitte Corporate Finance LLC insights and market data analysis that shed light on M&A trends in the industrial products industry.

Industrials trends

  • Auto industry challenges1: While the global automotive industry performed well in 2016, two critical performance indicators portend issues for the industry moving forward. Total shareholder return (TSR) and return on invested capital (ROIC) have lagged broader economic indicators as of late. For instance, in 2016, ROIC for the top 10 players was only 4 percent, just half the industry’s cost of capital. Companies should continually innovate to avoid serious disruption.
  • Infrastructure investment2: A variety of macroeconomic factors, such as the impending Brexit and the success of President Trump’s domestic infrastructure spending plan, will determine the level of growth in global infrastructure spending, with a potential variance of $1.7 trillion. Companies should improve project efficiency and maintain pricing strength with both customers and suppliers to help weather the significant uncertainty present in the marketplace.
  • Strength in specialty chemicals3: The American specialty chemicals sector is poised for strong growth in 2017, as American chemical manufacturers have easier access to inexpensive feedstock and energy products. The growth in green and sustainable chemical products will further underpin growth for companies that have the foresight to invest in research and development in this market.
  • Construction builds momentum4: In 2016, new and existing home sales reached their highest level since 2007 as a result of low mortgage rates, an improving job market, and strong consumer confidence. The Housing Market Index, a measure of builder confidence, increased to 67 in January 2017 from 61 a year prior, the highest level seen since 2005.

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References

1 “2017 Automotive Industry Trends: The future depends on improving returns on capital,” Strategy&, 2017.
2 “Capital Projects and Infrastructure Spending Outlook: Agile Strategies for Changing Markets” PwC, 2016.
3 “3 Upcoming Trends in the Chemical Manufacturing Sector for 2017,” Noah Tech Blog. December 16, 2016.
4 “Industry Insights: Building Products and Materials,” Duff & Phelps. January 31,2017.

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