Manufacturing & Industrial: Outlook & Trends

Manufacturing & Industrial: Outlook & Trends

Manufacturing and industrial companies have spent 2026 navigating strong growth opportunities alongside a more complex legal and business landscape. Strategic M&A has remained active across infrastructure, automation, energy, defense, and specialized industrial services, while tariff exposure, financing conditions, labor issues, cybersecurity, supply chain requirements, and export controls have continued to shape deal strategy and operational planning. Companies pursuing transactions, expansion, government contracting opportunities, or supply chain changes should evaluate these issues early to protect value, preserve flexibility, and move quickly when opportunities arise.

Manufacturing & Industrial: Outlook & Trends highlights key market trends, a recent industrial transaction, and legal developments that companies should keep in mind as they assess opportunities and risk through the remainder of the year.

Featured Transaction: Growth, Scale, and Succession: Schmidt Electric's Sale to EMCOR

Bass, Berry & Sims recently represented Schmidt Electric Company – a family-owned electrical contractor serving commercial, industrial, institutional, healthcare, semiconductor, airport, and data center clients – in its sale to EMCOR Group, Inc. (NYSE: EME). Founded in 1984, Schmidt Electric has grown into one of Texas' leading union electrical contractors, with operations across Austin, San Antonio, Houston, and surrounding markets. The transaction positions the company for continued growth while preserving the culture and legacy built over more than 40 years of family ownership.

Dealmaker Insights

Following the Schmidt Electric transaction, Frank Pellegrino, a member at Bass, Berry & Sims and lead partner on the transaction, spoke with Stephen Sleigh, managing partner of The Peakstone Group, which served as financial advisor to Schmidt Electric, about the factors driving buyer interest in industrial services businesses, the priorities that often shape founder- and family-owned company sales, and practical takeaways for owners evaluating strategic alternatives.

Stephen Sleigh is a Managing Partner of The Peakstone Group, where he is responsible for deal origination and execution. Since co-founding Peakstone, Stephen has advised many family-owned and entrepreneur-owned businesses across a wide range of industries.

What made Schmidt Electric particularly attractive to buyers?

Schmidt Electric was attractive to potential buyers for the following reasons – Schmidt was the leading independent electrical contractor in an attractive, fast-growing geographic market (Austin, Texas). Schmidt Electric has superior technical capabilities that enable it to design and install complex, medium-and low-voltage electrical systems in hospitals, semiconductor manufacturing facilities, airports, and data centers. 

Schmidt Electric is growing rapidly and has superior profit margins compared to other contractors. Schmidt Electric’s backlog of work was large and rapidly growing, ensuring years of contracted work. Finally, Schmidt Electric’s CEO and owner was willing to stay on and lead Schmidt for a number of years after acquisition.

Family-owned transactions often involve unique considerations beyond valuation. What were some of the key priorities that shaped this process? How did you help balance maximizing value with finding the right long-term partner for the family and business?

After we received indications of interest from a large and diverse group of potential buyers, we conducted one-on-one management meetings with a select group of high-quality buyers – some strategic, some private equity.

As management met with the different potential buyers, it became clear to the owner what he valued the most in the transaction. He wanted to sell to an organization that provided his employees with the greatest opportunity for professional growth, long after he retired. We negotiated a fair value for the business with that objective in mind.

What lessons from this transaction would be most valuable for other manufacturing and industrial business owners considering a sale in the next several years?

Quality detailed financial reporting is one of the most important aspects of selling a contracting business.

Buyers want to understand: Can you self-perform on complex work? Can you perform consistently profitably on your jobs – big and small? How does your actual job profitability compare to your expected profitability on your bid – do you consistently underperform or overperform? Do you have the systems and procedures in place to accurately report data and deliver it on a timely basis?

If a company is considering a sale, evaluating financial systems and processes is critically important.

Industrial M&A: What Dealmakers Should Watch

Contributors: David Harper and Brian Sims

Industrial and manufacturing M&A activity accelerated through the first half of 2026, fueled by continued investment in artificial intelligence (AI) infrastructure, grid modernization, defense spending, onshoring initiatives, and broader access to capital. While buyer demand remains strong, particularly among strategic acquirers pursuing larger, thesis driven transactions, dealmakers are operating in a more complex environment marked by tariff uncertainty, geopolitical volatility, rising energy costs, and evolving financing markets. As a result, buyers and sellers are increasingly focused on value durability, margin preservation, and execution certainty, recognizing that issues once considered ancillary can now have a material impact on valuation and deal outcomes.

Three considerations have emerged as critical priorities for industrial transactions. First, AI and automation have become core diligence workstreams. Beyond evaluating how a target uses AI today, buyers are assessing opportunities for future deployment, while also scrutinizing intellectual property ownership, data security, vendor dependencies, and governance controls designed to mitigate inaccurate or unreliable AI outputs. These considerations are increasingly central to operational efficiency, digital integration, and long-term value creation.

Second, tariff, tax, and customs exposure have become significant transaction risks, particularly as manufacturers balance reshoring strategies with continued reliance on imported raw materials and components. Dealmakers should closely evaluate supplier and customer contracts, focusing on pricing flexibility, cost pass-through rights, and termination provisions that could affect profitability if costs increase. Understanding how these factors could impact margins and EBITDA has become an essential component of valuation analysis and risk allocation.

Finally, the continued expansion of private credit has broadened financing alternatives for acquisitions and growth initiatives. While these solutions can provide greater flexibility than traditional lending structures, companies should carefully assess all-in financing costs, covenant flexibility, liquidity protections, and downside resilience. Financing structures that can accommodate cyclical performance, supply chain investments, and future growth initiatives may prove increasingly valuable in a market where execution certainty remains a key differentiator.

Companies that proactively address AI-related risks, tariff exposure, contractual flexibility, and financing considerations early in the deal process will be better positioned to protect value, allocate risk appropriately, and successfully execute transactions in a market that continues to reward preparation and adaptability.

For a deeper analysis, see the article by David Harper and Brian Sims of Bass, Berry & Sims, “Industrial M&A in 2026: What Dealmakers Should Watch,” published by Industry Today.

Acquiring a Unionized Facility? The Successor Bar Is No Longer an Obstacle

Contributors: Hunter Yoches and Tim Garrett

Federal labor law has long treated a change in ownership of a unionized employer as imposing on the purchaser a bargaining obligation if that purchaser met the legal definition of a successor employer. Under this doctrine, although the successor employer was not automatically bound by the predecessor’s union contract, the National Labor Relations Board (NLRB) imposed a legal presumption that the incumbent union’s majority status continued after the acquisition, triggering the successor employer’s obligation to recognize and bargain with the incumbent union.

For many years, and most recently since 2011, once the bargaining obligation attached, the buyer was required to recognize and bargain with the incumbent union for a “reasonable period,” which could last up to one year. During that period, neither the employer nor the employees, and not even a competing union, could challenge the incumbent union’s presumed majority status. This doctrine also prohibited the employer from unilaterally withdrawing recognition based on a claimed loss of majority support. This one-year ban became known as the “successor bar” doctrine.

But now, that legal presumption – the successor bar doctrine – is gone. A federal appellate court recently invalidated the successor bar, holding that the NLRB cannot prevent a successor employer from challenging an incumbent union’s majority support and withdrawing support during the one-year period after a change in ownership. While this decision does not eliminate the broader successorship doctrine, it returns to purchasers of unionized operations a valuable option and underscores the need to address labor issues early in the transaction process.

Successor employers have regained a tool to challenge majority support, but a wise buyer must understand what the tool does, and importantly, what the tool does not do. That is, the buyer likely will still initially inherit an obligation to recognize and bargain with an incumbent union if it meets the criteria to be considered a successor employer. However, the buyer – if a successor – is no longer automatically prohibited from relying upon objective evidence that the union has lost majority support and, based on that rationale, withdrawing recognition and refusing to bargain further

Going forward, a prospective buyer should continue to identify each bargaining unit, how and when the union obtained recognition, the status of any collective bargaining agreement, any recent elections or petitions, and any pending unfair labor practice proceedings. 

The court decision does not make withdrawing recognition risk-free. An employer that acts without sufficient objective evidence may still face refusal-to-bargain charges.

Potential buyers and successor employers can now plan for multiple outcomes: continued recognition and bargaining with the incumbent union, or a carefully supported challenge to the union’s majority status resulting in a withdrawal of recognition and consequent refusal to bargain.

This is the first federal appellate decision to address the successor bar since the Supreme Court’s decision in Loper Bright. While most federal appellate courts are expected to follow suit, employers should not assume the rule will be treated uniformly across jurisdictions.

For employers considering the acquisition of a unionized business, the principal takeaway is practical. The successor bar should no longer be treated as an unavoidable one-year period during which majority support is legally irrelevant. Union status, employee support, and available evidence should become part of the transaction analysis from the beginning. Potential buyers and successor employers alike should evaluate their options to utilize this regained tool.

Defense Industrial Base Expansion Brings New Supply Chain and Cybersecurity Requirements

Contributors: Todd Overman and Tris Sebesta

Federal procurement policy is increasingly being used to strengthen domestic production, secure critical supply chains, and expand the pool of companies supporting the defense industrial base. The Army’s ongoing modernization of its 23 depots, arsenals, and ammunition plants reflects that broader push. At Redstone Arsenal, Army Materiel Command has described the effort as a transition toward a more modern, data-driven organic industrial base with greater production capacity and improved wartime readiness.

The Trump administration reinforced those priorities on July 20, 2026, when President Trump issued an executive order directing the Department of War (DoW) to strengthen domestic and allied sourcing of critical materials. Among other measures, the order tightens the standards for waivers from existing sourcing restrictions and directs DoW to develop new supply chain mapping requirements. Those requirements could reach prime contractors and subcontractors at every tier and require companies to trace designated critical supply chains from raw materials through finished products. The contemplated rules would also require detailed bills of materials and supplier vetting for financial, foreign ownership, and manufacturing and supply risks, while requiring DoW to identify vulnerabilities, bottlenecks, and single points of failure.

Congress is pursuing many of the same objectives through the pending FY2027 National Defense Authorization Act (NDAA). The House-passed bill would expand eligible uses of the Defense Industrial Base Fund, expedite qualification of domestic and allied critical-mineral sources, encourage additional suppliers for solid rocket motors, and impose new restrictions aimed at reducing adversarial influence in defense supply chains. The Senate proposal, still awaiting a passing vote, similarly includes industrial base and supply chain reforms, including a grant program that would help small businesses and non-traditional contractors offset the costs of Level 2 Cybersecurity Maturity Model Certification (CMMC).

That focus on CMMC reflects the growing connection between traditional supply chain security and cybersecurity.

CMMC entered Phase 1 in November 2025, relying primarily on Level 1 and Level 2 self-assessments. Phase 2 was scheduled to begin on November 10, 2026, and would have expanded third-party Level 2 certification requirements, with additional implementation phases planned for 2027 and 2028.

The rollout changed course on July 13, 2026, when DoW suspended the Phase 2 transition and placed future CMMC milestones on hold while a task force conducts a review. The suspension follows concerns that certification costs, limited assessment capacity, and complicated compliance timelines could discourage small businesses and nontraditional companies from participating in defense contracting.

The pause, however, does not eliminate contractors’ existing cybersecurity obligations. Contractors and subcontractors must continue protecting covered defense information under DFARS 252.204-7012 and applicable NIST SP 800-171 requirements. As federal policy increasingly treats domestic production, supply chain visibility, and cybersecurity as interconnected parts of defense readiness, contractors should continue reviewing their lower-tier suppliers, documenting sourcing, and strengthening cybersecurity controls even while the CMMC rollout remains under review.

DOJ Issues First Corporate Enforcement Policy Declination: Lessons from Bosch’s FDPR Export Control Resolution

Contributors: Thad McBride and Faith Dibble

In June, the U.S. Department of Justice (DOJ) National Security Division issued its first-ever declination under the Department-wide Corporate Enforcement and Voluntary Self-Disclosure Policy (CEP), opting not to prosecute Robert Bosch GmbH for potential criminal violations of the Export Control Reform Act arising from exports to restricted parties in China. Although the products were manufactured outside the United States, they were subject to U.S. export controls under the Foreign Direct Product Rule (FDPR), which extends U.S. jurisdiction to certain foreign-produced items derived from U.S. technology. Bosch subsidiaries shipped approximately $72.4 million in products without required U.S. export licenses. DOJ determined that Bosch qualified for a declination because it voluntarily disclosed the conduct while still investigating the matter, fully cooperated with authorities, and implemented significant compliance enhancements, including expanding its trade compliance staff and strengthening FDPR-related controls.

Although Bosch avoided criminal prosecution, it agreed to pay approximately $40 million in combined civil penalties and disgorgement, including a $36 million penalty imposed by the Commerce Department’s Bureau of Industry and Security. The case highlights several key compliance lessons: voluntary self-disclosure can significantly reduce criminal enforcement risk, early disclosure carries substantial weight with regulators, remediation efforts must be meaningful and well-documented, and the FDPR's reach can extend U.S. export controls to foreign-made products sold by non-U.S. companies. The Bosch outcome also illustrates that while cooperation and remediation may help companies avoid criminal charges, they do not eliminate the potential for significant civil liability.

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