Strong manufacturing outlook is driving expenditure and M&A activity, says Eversheds

Robin Johnson, head of diversified industrials at Eversheds, has commented on the CBI Industrial Trends figures for May.

Johnson said: ‘Reflecting the strong outlook for the sector identified by the CBI, the feedback from our clients on the health of UK manufacturing is one of renewed optimism.

‘There is an increase in capital expenditure on government- and EU-led infrastructure — transport and energy projects in particular — where a backlog is being released. Also with consumer spending increasing, manufacturer order books for all areas of the supply chain are full.’

He noted that this is resulting in robust M&A activity, as manufacturers who had downsized suddenly have capacity constraints and sellers who have been waiting for a more buoyant market emerge. Johnson added that we are seeing 12–15 potential buyers in some deals where the asset is seen as good quality, and that the issues around social costs in Europe have also been tempered by the need for local supply and logistic costs.

Johnson continued: ‘However, a counter to the enthusiasm remains energy costs, which remain stubbornly high, a concern over social costs that was the focus of many corporates’ lean initiatives in the last few years and whether return on investment as capacity is increased can be maintained in the medium term.

‘For now, however, the sector is in rude health.’