M&A Activity in the European Manufacturing Industry — A Review of the Last 5 Years

In this post, Giovanni from Specter, and I take a closer look at the M&A activity in the European manufacturing industry in the past five years. The motivation for writing this post came from the following two questions we wanted to answer:

• How many software acquisitions have manufacturers done in the last years?
• Do manufacturers also acqui-hire companies?

Based on our analysis, the immense majority of the acquisitions (87.3%) have been made in the “non-software” category. At the same time, it’s hard to draw conclusions based on the data if there have been a significant amount of acqui-hires in the past. From talking to many people I can confirm that this has not really happened in the industry (yet).

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Before we dive into the analysis, a few notes for those interested in the data sources. The primary data source we used is Crunchbase. Crunchbase categories are not perfect, so we do not ensure that the data we have been working on includes 100% of the acquisitions in the last five years. We also checked and cleaned the whole list manually to detect missing information and ensure high data quality.

Without further ado, let’s take a closer look at the results.

How many acquisitions have manufacturing companies made per year
From 2015 until today, the manufacturing companies in our dataset have made 1,134 acquisitions in Europe. The distribution of the acquisitions over the years is the following:

As you can see, the amount of acquisitions per year has decreased significantly from 2016 with 275 acquisitions in 2016 to 117 in 2019. Put differently, manufacturing companies have done 57.5% fewer acquisitions in 2019 compared to the peak in 2016.

Has Covid-19 accelerated or lowered M&A activity?
Out of curiosity, we also took a closer look at what happened since Covid-19, i.e., at total acquisitions since April 2020. If we compare the number of total acquisitions between Q2-Q3 over the last years, it looks the following:

The result is very similar compared to the overall number of acquisitions over the last five years. Since 2016 the number of acquisitions in Q2 and Q3 is also declining and has been much lower in 2020 with 34 acquisitions compared to 69 acquisitions in 2019. I’m sure that Covid-19 has shifted priorities at many manufacturing companies and led to lower M&A budgets — at least in the short-term.

Where do the companies come from that got acquired?

As you can see in the graphic above, acquisitions have taken place everywhere across Europe (referring to the location of the acquiree). However, there are four big purple spots — Berlin, London, Paris, and Madrid — that stand out and show a relatively high number of acquisitions.

The data shows us that most of the acquisitions have been made in the UK, followed by Germany, France, and Italy. The surprising result is that there have been more acquisitions in the UK (27.2%) compared to Germany (16.5%) that is considered as the manufacturing power-house in Europe contributing 28% of the EU’s value of sold production.

What kind of companies have manufacturing companies acquired?
When looking at the acquisitions, we classified them as “software” and “non-software”. The immense majority of the acquisitions are in the “non-software” bucket, i.e. 87.3% of total acquisitions and at least 86% per year if you look at every year separately.

Looking at the results, manufacturing companies have acquired a significant amount of consulting companies. Some manufacturing companies acquire boutique consulting firms to strengthen their consultative offering and digital expertise. An example of the latter is the acquisition of Cinteo GmbH by Daimler AG to develop digital products and services for Daimler AG.

Two bigger software acquisitions caught our attention:

• Metrologic Group that got acquired by Sandvik for €360M. The Metrologic Group develops 3D inspection software and electronics. Sandvik wants to use the software for continuous measuring throughout the whole manufacturing process, instead of manual measuring performed in a workshop. In the year before the acquisition, Metrologic Group did €43.4M in revenue, so we can assume a 7–8x revenue multiple, which is very high.
• PTV Group that got acquired by Porsche SE for €338M. PTV Group develops software for transport planning and logistics, such as traffic simulation software. According to press statements, this is a strategic investment for Porsche that sees significant “potential in optimizing the flow of people and goods”. PTV Group has its HQ in Karlsruhe, which is only an hour away from Porsche facilities in Stuttgart-Zuffenhausen (South Germany).

As I pointed out in one of my last articles, a significant share of the buyers of manufacturing startups are not traditional manufacturing corporates but rather software companies such as TeamViewer (acquired Ubimax), Hexagon (acquired Amendate), or Software AG (acquired Trendminer) or even other startups such as Xometry (acquired Shift) or Kreatize (acquired Fabrikado).

Lastly, the PSA Group stands out because it has acquired six startups in the last couple of years: B-parts, Carventura, AramisAuto, TravelCar, Autobutler, and Mister Auto.

Do manufacturers acqui-hire companies?
Finally, let’s focus on the second question that inspired us to write this post. For those who don’t know what an acqui-hire is, it means that a company acquires another company — most often a small startup — primarily to recruit its founders and employees.

To analyze acqui-hires in the past, we looked at two specific numbers:

First, we tried to look at acquisition sums below €10M. Since most of the acquisition sums have not been disclosed and cannot be found publicly, we cannot draw any conclusions from the deal size and highlight relevant acqui-hires.

Second, we tried to look at the founding date of the companies that got acquired:

As you can see in the chart above, the big majority has been founded more than 10 years ago (please note that for 432 acquisitions (38.1%), we couldn’t get the data because the Crunchbase import/export function was not working). Only eight companies are less than five years old. From just looking at the data and going manually through these deals, it’s hard to say if one or more of these acquisitions have been done solely for the talent.

Based on the conversations I had with many people in the manufacturing industry over the years, I can confirm this and have also not come across good examples of acqui-hires so far — even though the problem of the skills gap is massive.

Quo Vadis?

The data shows us that manufacturing companies have acquired very few software companies and startups in Europe in the past years. At the same time, it’s hard to draw conclusions based on the data if there have been a significant amount of acqui-hires in the past.

Given the massive changes that come with the industry’s digitization, all the new technologies, the skills gap, and the worldwide competitive pressure, I’m convinced that we will see more software-related acquisitions and also acqui-hires. It comes with some risks, but Covid-19 has increased the urgency to drive the manufacturing industry’s digital transformation. That’s good.

However, we need to stop the self-complacency that we sometimes have in Germany and focus on how we — the startup and the corporate world — can collaborate better and learn from each other. Based on my experience in the last years, I think there is a massive gap in how both sides talk and engage.

My best guess is that especially automotive and automation companies in the manufacturing sector will do acqui-hires in the future. Automotive companies because they have done a lot of M&A in the past and have the financial and personal resources to do so. Automation companies because they need the talent to build and implement cutting edge technologies.

If you want to talk more about this topic, please reach out and sign-up for my Newsletter, The Future of Manufacturing. Big thanks again to Giovanni, who helped me a lot with the data.