Manufacturing And Industrial M&A: Consolidation And Expansion

• Strategic Growth and Market Expansion: Key M&A deals in Manufacturing highlight a focus on geographical expansion, market diversification, and strengthening competitive positioning.

• Technological Advancements and Synergies: Investor activity in the sector underscores priorities in enhancing manufacturing capabilities, advancing technology, and achieving operational efficiencies across diverse industries.

• Over 180 deals were recorded in the manufacturing sector last year

Last year, the manufacturing and industrial sectors in CEE continued to evolve. Characterised by consolidation and expansion through M&A, deals were driven by FDI, sector-specific opportunities, and the strategic goals of local and international companies seeking to achieve economies of scale, a competitive edge, and streamlined operations. Consolidation was notably evident in the automotive, machinery, and chemicals sectors with larger entities acquiring smaller firms in order to expand their market share and capabilities.

By acquiring firms that have complementary technologies or expertise, companies can broaden their product offerings and enter new markets. This is particularly relevant in CEE manufacturing, where cutting-edge technological advancements enable them to remain competitive and enhance their processes and product quality.

Through expansion via M&A, "companies in the manufacturing and industrial sectors in CEE are leveraging acquisitions to enter new geographic markets, diversify their product lines, and enhance their technological capabilities," says Rodica Manea, Partner at CMS in Romania. "Many of them are using M&A to establish a presence in countries within the CEE region, tapping into markets with high growth potential. The acquisition of firms with different product lines also enables companies to diversify their offerings and reduce dependency on a single market segment."

Data shows that there has been a decrease in the number of deals in manufacturing. The automotive and automotive parts sector, which used to be one of the most buoyant for both acquisitions and joint ventures, has become notably less active. More recently, it has been impacted by a manufacturing slowdown in Europe, particularly in Germany, leading to fewer automotive deals.

"This has an effect on the manufacturing sector in Bulgaria, but not on M&A," says Atanas Bangachev, Partner at CMS in Bulgaria. "We saw M&A transactions in companies with developed new innovative products and a market presence, which were acquired by competitors from Western Europe or the US. We saw that particularly in the recycling sector and in the chemical industry."

"Manufacturing does not function in vacuum," says Błażej Zagórski, Partner at CMS in Poland. "Levels of GDP growth and inflation rates both have an impact, and of course, the situation in major European economies has had an obvious impact on the sector. Nevertheless, I expect that various challenges in certain sectors, e.g. automotive, will lead to increased levels of M&A activity this year."

Dealmakers have been busy elsewhere. "There is a consolidation trend in manufacturing and industry," says Velizar Velikov, Head of M&A Database at EMIS. In part, this arises a result of cross border deals, he explains. "One of the largest transactions in the industrial sector is in packaging," he notes. "Austria's Constantia Flexibles agreed to acquire a majority stake in Swiss packaging producer Aluflexpack, a move that significantly expands its portfolio and strengthens its geographical presence in Türkiye, Poland, and Southeast Europe."

Overall, the sector saw several stand out deals last year. In February 2024, Austrian packaging manufacturer Coveris bought Czech label producer S&K Label. In April, UK packaging company DS Smith completed its acquisition of Serbia-based packaging company Bosis doo. In September, Belgian manufacturer Van Genechten Packaging (VGP) acquired Polish group Dot2Dot, which specialises in high-end folding cartons; and in October, Saica Group announced the acquisition of Schumacher Packaging plants in Poland.

Alexander Rakosi, Partner at CMS in Austria, confirms that "there has been a significant level of activity in packaging and recycling. In pharma packaging, we see a few players trying to amass market share with quite a few transactions happening in which we are currently involved," he says. In terms of technology-driven deal activity, he points to "the digitalisation of various workflow processes for industries that are more bricks and mortar, like construction."

There are also deals in other areas of manufacturing. "There is, for example, a Spanish company buying into an automotive components company in Slovenia," says Velizar Velikov. "The reasons are twofold: to gain access to new clients and to new advanced technology. Another interesting example is a Romanian company buying out an Austrian company with factories in Hungary, so they can use improved logistics, as well as access new clients and new markets. We have domestic transactions between local companies - one of the largest in Poland is currently buying a company operating in an adjacent sector because they want to expand their product range."

Juraj Fuska, Partner at CMS in Slovakia, points to an international focus on the sector from the Middle East and China. "There is increased interest from Chinese investors into this region," he says. "A trend that is set to continue in 2025 which will impact the manufacturing sector."

Döne Yalçın, Partner at CMS in Türkiye and Austria, adds: "We see investors expanding their production lines in Türkiye - clients from different sectors are building new production units and sites. There is also more investment going into Türkiye: to strengthen their supply chains, European investors are also investing in their distribution companies, even buying and restructuring them."

Błażej Zagórski notes also that "there are clear benefits of pursuing an M&A strategy in the manufacturing sector, e.g. the ability to enter new markets quickly, to extend product lines and widen the customer base, as well as acquiring a skilled workforce. This will also create a steady deal flow in the sector in the near future".

In our experience, cultural differences in CEE can significantly impact post-acquisition integration in the manufacturing and industrial sectors. Challenges include: differences in language and communication style that can lead to misunderstanding; variations in management approaches, such as hierarchical versus flat organizational structures, can create friction; and different cultural norms around work practices, such as attitudes towards work-life balance and teamwork, can cause disruptions. "Aligning the corporate cultures of the acquiring and acquired companies is crucial," says Rodica Manea.

To mitigate these challenges, companies can proactively manage these differences, enhancing the success of their post-acquisition integration and realizing its full potential. Rodica Manea suggests that they pay attention to: cultural due diligence, effective communication; leadership alignment; cultural sensitivity training, and forming dedicated integration teams.

Consolidation and expansion driven by M&A will continue to transform the manufacturing and industrial sectors across the CEE region, as international companies leverage these strategies to achieve their objectives in entering new markets.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.