M&A in the manufacturing and distribution sector FY report 2024
2024: a year of two halves
- Foreign investment in UK manufacturing and distribution businesses continued to climb since Q2 2023’s low point, with volume gaining pace in H2 2024.
- After the UK election, there was a sense of political stability, which boosted transaction activity until the Budget affected confidence.
- Activity is set to increase as investors seek to deploy capital amidst declining interest rates.
- AI can play a role in helping businesses to boost efficiencies in the face of increased costs following the Budget.
- The UK may sidestep US tariffs – an unexpected Brexit twist that could boost global trade.
Overseas investment in UK manufacturing continues to grow
Foreign investment in UK manufacturing and distribution businesses has continued its climb in value and volume since a low point in H2 2023, with the growth in deal volume gaining pace in H2 2024.
UK manufacturing still leads Europe
UK manufacturing and distribution continues to lead Europe in terms of transaction volume, capturing a fifth (21%) of all deals in FY 2024.
While it retains the largest share of activity, UK investments were down 9% in 2024 on 2023 levels as a strong first half gave way to a quieter H2. This was the case among many geographies, with Germany and Italy being notable exceptions.
Total European deal volume continues to see a steady decline since the high point in Q1 2021 (2,198 deals completed), with Q4 2024 recording just 1,362 deals.
The second half of last year induced whiplash for many in the UK: the Q3 24 Make UK Manufacturing report, covering precisely the period between the election and the Budget, revealed business confidence among its highest level since the survey began in 2014. Nearly 60% of firms anticipated stronger economic growth over the year ahead, deeming there to be greater political stability, with only 6% foreseeing a decline in GDP under the new government. Moore Kingston Smith witnessed a surge in companies seeking to close transactions before the Budget as they feared very large increases in capital gains tax.
A quarter later, the market changed after the Budget introduced a national insurance rise for businesses, carry tax increase in 2026 for private equity firms and inheritance tax changes for individuals.
According to Reuters, the UK Manufacturing Purchasing Managers’ Index (PMI) reflects a fall in confidence, marking the sharpest contraction in nine months, as it fell from 49.9 in October to 48.0 in November and 47 in December. Contributing factors are the Budget as well as wider global economic issues, with increased employment taxes, minimum wage and capital gains tax (albeit gentler than anticipated). Small companies have been particularly affected, reporting marked drops in output, new orders and export business, as operational costs for manufacturers are driven up, putting pressure on profitability and investment capacity.
If the UK Budget impacted British manufacturing businesses, the US presidential election a week later concerned the global economy as Donald Trump threatened high global tariffs. It remains to be seen how the UK and Europe will fare as Canada, Mexico and China have had tariffs imposed on their exports to the US.
The good news for manufacturing and distribution businesses is the potential that AI can offer in terms of streamlining operations and creating cost-saving efficiencies. AI is set for a boost in the UK after the government published their AI opportunities action plan. A recent Make UK publication reports that, while 75% of UK manufacturers plan to increase AI investment, only 16% feel knowledgeable about its applications. The benefits of properly harnessing AI are plenty and growing (see here).
Inheritance tax changes: what you can do
The Labour government’s Budget included several measures which could have a major impact on succession planning for owners of businesses in the UK.
Business owners may be concerned by restrictions to agricultural property relief and business property relief, with some families considering how to fund an inheritance tax (IHT) bill without breaking up or selling the family business. An option to pay inheritance tax in ten annual instalments will be available on such assets until they are sold.
The change to bring pensions within the IHT tax net creates challenges for people who planned their retirement on previously existing rules, causing some to reconsider their plans. The changes may also cause some estates to breach the £2 million threshold, at which the residence nil-rate band begins to taper away.
Considerations for family business owners
Family businesses play a crucial role in the UK economy. Their importance was previously reflected in their treatment as business property for tax purposes, exempting them from IHT upon the death of a shareholder. But that is changing, with a family business owner now only partly exempt. Take for instance a family business valued at £10 million: the beneficiary could now face a £1.8 million IHT bill (20% of the value above £1 million). This has inspired 32 trade associations representing over 160,000 UK family-owned businesses to write to the chancellor calling for a consultation on changes to IHT.
Family businesses in the UK make up 85.9% of private sector enterprises and contribute £575 billion to the economy
“We recognise the essential role family businesses play in the economy and are dedicated to supporting them through fiscal and market fluctuations that can impact their profitability”
Jeremy Read, Head of Manufacturing and Distribution at Moore Kingston Smith
Planning ahead
Various strategies should be considered by business owners when planning for their beneficiaries and the future of their families and business. They include:
- Tailored, sector-specific business valuation (succession planning);
- Employee ownership trusts (EOT) (help avoid CGT and boost staff morale);
- Selling the business (due to a 20% IHT charge on shares);
- Management buy-out (MBO) and management buy-in (MBI) (lock in business value);
- Fundraising – debt and equity (flexible financing options);
- Acquisitions (accelerate growth and transformation through strategic M&A);
- Purchase of own shares (share buy-back) (generational share transfer);
- Seven-year gifting rule (avoid IHT by gifting shares or assets).
Moore Kingston Smith’s experienced corporate finance team can help implement these strategies to ensure the continuation, resilience and profitability of your business.
Corporate M&A picks up in 2024 (UK deals)
UK deal type
Consolidation plays will continue to gain pace as businesses of scale with efficient operations are better able to offset higher employment taxes. Indeed, corporate M&A’s proportion of manufacturing and distribution investment has grown steadily over recent years, accounting for 42% of all deals in 2024. On the other hand, venture capital deals have continued to fall steadily from high points in 2020 and 2021.
Case study
Bright future for RS Aqua with Moore Kingston Smith support on cross-border acquisition
UK marine technology specialist RS Aqua Limited is set to see its growth accelerate further following its acquisition by General Oceans, a marine powerhouse backed by Scandinavian family Ferd since 2023. The Portsmouth-based business is a manufacturer of integrated ocean systems and developer of innovative AI technologies.
The deal marks another milestone in a relationship that spans a decade with Moore Kingston Smith, who provided corporate finance and tax advice on this deal and also advised on the 2014 management buy-out (MBO) led by RS Aqua Managing Director Martin Stemp.
Since the initial MBO, RS Aqua tripled in size, establishing itself as a global innovator in marine technology.
Cross-border transactions now account for 35% of all M&A deals in the mid-market, according to the Compass report produced by Moore Global Corporate Finance
“John Cowie at Moore Kingston Smith helped me buy RS Aqua in a buy-out from its founders in 2014 and we’ve kept in touch ever since. I needed someone who really understood RS Aqua when I began looking for a partner to take the business to the next level and he and Moore Kingston Smith were the right choice to advise me, there whenever I needed them, negotiating and managing the process tirelessly from start to finish. They helped make a demanding process much easier. General Oceans is the perfect fit”
RS Aqua Managing Director Martin Stemp
Consumer, materials & resources, healthcare remain dominant subsectors
Subsector half yearly breakdowns
Case study
Moore Kingston Smith architects sale of Pinewood Structures to Lagan Investment
The purchase of Pinewood Structures by Lagan Investment brought together two of the UK’s leading timber frame manufacturers, enabling them to provide clients with a wider range of high-quality timber frame solutions in response to the growing demand for new houses in the UK.
Founded in 1981 in Sandy, Bedfordshire, Pinewood Structures is a major provider of sustainable timber frame structural solutions encompassing high-performance platform timber frames. The business has delivered over 600 projects in the last 15 years, from housing, retirement living and supermarkets, to schools, student accommodation and hotel developments, with national customers including house builders and major contractors.
Lagan Investments already owns Yorkshire-based Frame-Tech Structures, one of the fastest-growing providers of timber frame solutions in the UK, and FastHouse in County Derry.
“Moore Kingston Smith’s knowledge of the Pinewood business and their no-fuss approach resulted in a smooth transaction for all parties.”
Geoff Arnold, Managing Director at Pinewood Structure Holdings
Five ways manufacturing and distribution businesses can benefit from generative AI
Over the past year, advances in AI have enabled several tools that manufacturing and distribution firms can leverage to enhance operations in 2025.
Thanks to its capability of processing and comprehending vast amounts of data, generative AI can go beyond just enhancing productivity and efficiency. Here are five examples of how generative AI is transforming the manufacturing and distribution industry:
1. Machine monitoring and maintenance
Generative AI can be instrumental in transforming maintenance workflows by interpreting and summarising key operating procedures and regulatory standards or sifting through manuals to quicky identify solutions to problems. This will help to reduce unplanned downtime and gain operating efficiencies.
2. Production and inventory tracking
Generative AI can be used to talk to your inventory data, extract insights and generate quick charts or dashboards for key metrics to be ready to present in meetings.
3. Supply chain efficiencies
Generative AI can research potential suppliers, compare prices, and compile reviews or certifications, regularly track commodity prices or availability and summarise relevant articles or data points.
4. Customer service support
Suppliers or vendors can use generative AI to query lead times, inventory status or order progress through an external-facing chatbot.
5. Streamlining and timesaving
Generative AI can transform audio or typed meeting minutes into a list of specific tasks and deadlines related to production or quality improvements to help streamline processes and save time.
Moore Kingston Smith can help you get started
Moore Kingston Smith’s in-house experts have built a proprietary platform firms can use to bring the benefits of generative AI into their own business – but without the start-up resource typically required.
“We’ve put a focus on quality,” stresses Jared Goodrich, Senior Digital Transformation Manager. Previously firms have prioritised saving time but doing so can erode quality but Moore Kingston Smith’s tool balances both. “It’s replacing tasks, not people who remain pivotal to businesses. It’s about achieving quality and effectiveness.”
Looking ahead
Finding growth and value will be a challenge in 2025 because businesses sold in the last couple of years had valuations based on high inflation. When base costs went down, their profitability went up. That was inflating profits and it’s no longer the case. In Europe, the growth rates are low so value and synergies will come from roll-ups and consolidation.
“Businesses aren’t benefiting from the inflated profitability we saw during periods of high inflation, and with lower growth rates in Europe, consolidation is becoming a key strategy,” says Marc Fecher, Manufacturing Corporate Finance Partner.
This presents an opportunity for private equity, as lower valuations create attractive buying conditions, particularly in roll-up scenarios. However, without broader economic growth, many businesses will feel the strain, forcing them to either merge or exit.
The focus on AI is set to intensify. In Q4 2024, UK Prime Minister Sir Keir Starmer unveiled plans to position London as the global hub for AI, supported by the government’s commitment to creating “AI growth zones” aimed at attracting AI businesses with favourable conditions and reduced regulatory hurdles. Starmer highlighted AI’s transformative potential across multiple sectors and announced substantial investments to strengthen the UK’s AI capabilities. Additionally, with rising national insurance contributions, businesses must prioritise efficiency, and AI is a powerful tool for streamlining operations and reducing costs.
The transatlantic dynamic also holds promise. Says Jeremy Read: “A strong US dollar and weaker European currencies make businesses here more appealing to US buyers.” He sees this as an opportunity for UK firms, particularly if tariffs shift in their favour and the strong relationship with the US continues to provide an advantage. Indeed, our data reveals that US investors made 259 manufacturing and distribution investments in the UK in 2024 while Europe completed 197.
Preparedness is key to success. “Don’t be surprised. Start planning now to minimise costs and maximise value for your shareholders,” Marc Fecher stresses.
Moore Kingston Smith’s own pipeline of inbound enquiries paints a promising picture. While the absolute number of inbounds is slightly less than a year ago, the opportunities are more firmly driven by concrete reasons for sale – suggesting conversion will be higher. And just as high interest rates have hampered activity since the 2021 peak, we are hopeful that activity will pick up pace as rates come down and stabilise, creating opportunity for well-capitalised investors.
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Methodology
In compiling our deal tracker we use Pitchbook, an international financial data provider that gives access to comprehensive data on the private and public markets. Moore Kingston Smith has analysed completed transactions, excluding debt and IPO transactions, by European and UK based manufacturing and distribution companies from 1 January 2018 to 31 December 2024 to identify the trends in this report. This research aims to capture all transactions by European and UK companies that fall within the manufacturing sector. Inevitably there will be transactions that have taken place that have not been captured.
