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Analysis

Industrials M&A update: Q2 2020

The industrials space in power, utilities, and renewable energy is seen in a strong position to grow. On the other hand, manufacturing companies are focusing on the ever-changing dimensions of work, workplace, and workforce to build the trust with the on-site and virtual workforce amid the tight labor market. This industrials mergers and acquisitions (M&A) update provides Deloitte Corporate Finance LLC market data analysis that sheds light on M&A trends in the industrial products industry.

Industrials trends

  • Power and utilities:1 The power and utilities (P&U) industry started the new decade in a strong position, identifying new opportunities for growth while leading the economywide clean energy transition. The industry appears to be in a relatively strong position to contend with the five pandemic-induced electric load shifts. The next six months will be telling if the industry can continue to lead the energy transition while mitigating generation variability with demand flexibility and seizing growth opportunities.
  • Renewable energy:2 The declining costs and rising capacity factors of renewable energy sources, along with the increased competitiveness of battery storage, set the stage for continued rapid growth of renewable energy. But stay-at-home orders, labor constraints, and supply chain disruptions have slowed this growth trajectory in the near term. The latter half of 2020 likely will be crucial for the short-term renewable energy pipeline, which depends on how the pandemic situation unfolds.
  • Manufacturing:3 A tight labor market has been an additional constraint to the industry’s momentum amid the pandemic. The second half of 2020 is where industrial companies are expected to launch their recovery strategies in the potential wake of the pandemic in an effort to emerge stronger and prepare for the next normal. A focus on the ever-changing dimensions of work, workplace, and workforce will be paramount, including building trust with the on-site workforce and finding ways to support virtual workers.
  • Oil and gas:4 Due to the rapid decline in demand, combined with inelastic short-term supply and rising liquefied natural gas (LNG) liquefaction capacity, natural gas prices have been driven to near-record lows in the United States, Europe, and Asia. Low regional price differentials will likely persist, reducing US LNG export economics and jeopardizing short-term LNG liquefaction project sanctioning while supporting US petrochemicals competitiveness. Companies are balancing short- and long-term priorities in the face of low prices.

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References

1 Jim Thomson, 2020 power and utilities industry outlook, Deloitte, 2020, accessed July 11, 2020.
2 Marlene Motyka, 2020 midyear renewable energy outlook, Deloitte, 2020, accessed July 11, 2020.
3 Paul Wellener, 2020 manufacturing industry outlook, Deloitte, 2020, accessed July 11, 2020.
4 Duane Dickson, 2020 oil and gas industry outlook: Midyear outlook, Deloitte, 2020, accessed July 11, 2020.

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