- Market drivers are creating a strong case for investment
- Valuations are strong
- Post-COVID growth has been sustained
- Challenges to adoption are being overcome
- Sector is planning for growth
The Industrial Automation sector is experiencing a significant surge in M&A activity. The sector has remained attractive for M&A post-COVID, with the volume of global M&A transactions in the sector in 2023 and 2024 nearly double that seen in 2019 and 2020.
M&A activity is being driven by consolidation among strategic players seeking geographic and vertical integration, significant private equity interest, as well as the acquisition of new advanced technologies such as AI and big data.
Volume of M&A transactions by subsector
Source: Mergermarket, BDO analysis
Market drivers create a strong case for investment
Industrial automation is part solution to the challenges faced by manufacturers such as productivity issues, labour efficiency, skills shortages, supply chain security, higher quality standards and a requirement to better use resources from an ESG standpoint.
Key features of businesses in the sector typically include secured orderbooks, recurring software or service revenues, IP ownership, high barriers to entry and impressive margins. These features are very attractive to private equity investors who have been involved in a staggering c40% of global M&A transactions over the last three years.
As an example, KKR invested in Industrial Physics in 2023 and have quickly sought to consolidate through M&A. BDO led the sale of Torus Technology Group to Industrial Physics as a key deal of 2024, bringing a wider range of test and measurement equipment and metrology services to the IP group. We also advised Mpac Group on the acquisition of CSi Palletising, a provider of turn-key automation solutions, specialising in end-of-line systems, continuing BDO’s long history of successful deals in the sector.
Valuations are strong
From a valuation perspective, multiples of our listed Industrial Automation index remain strong, and if well positioned, we also see attractive multiples for privately owned businesses.
Average valuation multiples: BDO’s Industrial Automation index
Source: S&P Capital IQ, BDO analysis
Post-COVID growth has been sustained
The post-COVID investment surge in automation has been sustained despite slower economic growth and higher interest rates following record levels of orders and backlog generated for automation businesses over the 2021 and 2022 period. As an example, Interact Analysis expect that overall global robot shipments have continued at broadly similar levels to both 2023 and 2024.
Further growth is expected in 2025 driven by anticipated increases in machinery investments – as key economies lower interest rates – alongside a broader recovery in the global manufacturing sector. A return to strong growth of over 7% per annum is then forecast from 2026 onwards.
Global industrial robot shipments
Source: Interact Analysis
Overcoming the challenges to adoption
Adoption has been a key issue – especially within the UK. Currently, according to the International Federation of Robotics, the UK lags all major competitors, and is ranked 25th in the world for robot density (number of robots per 10,000 workers) giving a huge opportunity for productivity improvement. The graph below shows the top 15 countries for robot density and illustrates how many smaller economies are well ahead of the UK.
Robot density in the manufacturing industry (2023)
Source: International Federation of Robotics
Innovation on the horizon to ease adoption and broaden use-cases
Interestingly, the rapid advance of technology in this space may be starting to ease the adoption challenges, particularly those relating to integration issues and a lack of technical knowledge of how to implement and maintain automation systems amongst SMEs.
The two examples below illustrate how continuous innovation in the sector will continue to drive growth and ease adoption:
- Generative AI became firmly established in the public consciousness over the course of 2024, and it is through Large Language Model (LLM) frameworks that companies like Siemens are empowering engineers of all experience levels to write accurate, trustworthy code in a fraction of the time. By fine-tuning pre-trained language models Siemens has created an assistant that can understand the nuances of industrial automation, generate code that meets customers’ standards and easily integrate that code into their automation workflows.
- Teach-less robotics refers to a method in robotics where robots are programmed to perform tasks without the need for manual teaching or programming by a human operator. Instead of being explicitly programmed for each task, these robots use advanced technologies such as machine learning, AI, and computer vision to learn and adapt to new tasks on their own. This approach allows robots to be more flexible and efficient, as they can quickly adapt to changes in their environment or tasks without requiring extensive reprogramming. It also reduces the need for specialised knowledge to operate and maintain the robots, making them more accessible for various industries.
Now paired with the power of AI we may be seeing the convergence of several factors all working in favour of automation technologies and increasing its scope.
According to MakeUK, manufacturers indicate that machine learning and automation technologies have been introduced for many departments even outside of the manufacturing process, including energy management, training, marketing and back-office support. The variety of applications are wide and many and can help manufacturers find efficiencies not previously considered.
The cost of investment to automate certain processes through these technologies may be far lower than the automation of the manufacturing process itself, thereby reducing the adoption hurdle.
Most common uses of ML/AI in manufacturing, % share of manufacturers citing use
Source: MakeUK “Manufacturing and Automation: opening the gates for productive and efficient growth”
Sector is planning for growth
According to BDO’s latest Economic Engine survey 87% of UK SME manufacturers are planning investments in the next two to five years, with 37% planning to focus their investment on advanced equipment or machinery. With operating costs cited as the biggest current challenge, manufacturers are keen to automate and have appetite to seek financial support or new equity investment to enable this.
The top areas of planned investment in automation or AI are as follows:
- Running supply chains (eg distribution networks, warehouse inventory) more efficiently
- Developing new products or services using in-house intellectual property or data (eg demand forecasting, predictive maintenance, quality control)
- Machine learning for product or service recommendations to prospective customers.
Such investment will continue to drive growth in the sector and underpin M&A opportunity in industrial automation over coming years.
Get in touch with our Industrials team to understand more. And if you want to find about more about deal value and overall M&A market performance in the UK, read our latest PCPI report.