M&A in Europe H2 2017 update: The Brexit effect on manufacturing

March 08, 2018


Ahead of the latest UK Government Index of Production, we are releasing our H2 2017 analysis which reflects an upbeat period for the UK Manufacturing sector.  

According to our economic and market analysis, 2017 looks to have ended on an overall positive note with the early outlook for 2018 looking optimistic too.

MnA in Europe


Our H2 2017 share price index is almost 5 times higher than H2 2008 and nine out of 14 firms have seen gains of more than 10% during H2.  Renishaw, an engineering and scientific technology company based in Gloucestershire, and Fenner, a Hull-based manufacturer of industrial belting and other polymer-based products, stand out from the pack, reflecting exceptionally high share price growth:

  • Renishaw’s share price increased c.45% in both halves of 2017, in a year with reported record revenues and a 25% increase in adjusted profit before tax. Renishaw holds over 1,600 patents and its R&D strategy of investment in cutting edge technology looks to be paying off.
  • Fenner saw share prices rise c.38%. This was driven by two bursts in share price coinciding with positive company announcements in July and November. Strong performance was experienced across the group.

Such growth is impressive as it comes at a time when the sector looks to be absorbing inflationary pressures while protecting customers e.g. the ONS Input PPI rose c.6% while the output PPI increased only c.1.5%.

The UK Manufacturing PMI also appears to remain positive while exhibiting a clearer cyclical pattern over the three to four month periods since the Brexit vote.

We also notice that manufacturers are optimistic (PMI trending up) in an environment where the Sterling is strengthening (higher GBP to USD rate). Why is that, you might ask?

Perhaps it’s a cycle with high demand/exports leading to optimistic manufacturers and a strengthening pound in turn leading to ‘less expensive’ raw materials and hence continued optimistic manufacturers.

MnA in Europe 2



M&A commentary

We’ve seen no major changes in the number of deals being announced with H2 deals in Europe and the UK down 2% on the year. However, we note a potential £7bn deal in the sector is being reported with Melrose's hostile takeover bid for GKN.

We’re also seeing several reports indicating that private equity firms have c.£1 trillion in cash reserves. Recognising that UK manufacturing businesses are performing well, is the post-Brexit landscape presenting opportunities for investors in the sector?

From a Private Equity (PE) perspective, we’ve been looking at PE held assets in the ‘Industrials and Chemicals’ space. Our high level analysis shows that average holding periods are higher than they used to be e.g. in the years 2004-2006 the average holding period for businesses exited was around four  years while in 2015-2017 this was about six years. This general theme is in line with previous reports e.g. Preqin (2015) and PwC (2017).

We believe that holding periods could be reduced by digitising PE portfolio firms and you can find out more about this and other highlights in our recent PwC report 'Rising above uncertainty'


  • Local demand: If we assume that local consumers are a key driver of demand for UK manufactured goods, then what growth could we see in 2018? Well, with the ONS reporting UK employment rates at their highest in 40 years, negative average wage growth in 2017 and only marginal improvements expected in 2018, it is difficult for us to see how local consumers are going to drive higher growth rates.
  • Interest rates: The Bank of England raised interest rates in October 2017 and we think there may be one additional rise in 2018.

Overall, and finally, it will be interesting to see if the high performance trends continue as Brexit negotiations intensify.

Sources: Bank of England, The Guardian


by Mide Coker Senior Manager

Email +44 (0)20 7213 4429

by Ishaq Ahmad Manager

Email +44 (0)7730 068 900