American conglomerates may make 2019 record year for M&A

M&A in manufacturing expected to increase in 2019 according to EY despite trade concerns

EY U.S. Advanced Manufacturing Leader David Gale on why the firm expects a rise in mergers and acquisitions in 2019 and weighs in on the potential impact of U.S. trade tensions with China on potential deals.

2018 was a record year for M&A deals, driven by historic action in manufacturing, according to EY U.S and 2019 is expected to be just as strong as some of America’s biggest companies get smaller.

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“We are seeing a de-conglomeration of some big companies—companies that America was built on. And that’s creating a lot of big-time M&A. It’s also making its way through other parts of the middle market” said EY Global Advanced Manufacturing Leader, David Gale during an exclusive interview on FOX Business’ “Mornings with Maria.” That market is companies in the $5 billion to $10 billion range.

While Gale remained tight-lipped over the companies that are expected to make deals in the next year, he said that some industrial names, including General Electric and United Technologies, may be the tip of the iceberg.

“The big companies are all breaking apart and they are breaking apart into more of a pure-play portfolio because the market is paying a premium for a pure-play portfolio as opposed to a mish-mosh of companies that have been put together that don’t have a lot of rhyme or reason,” he said.

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Last month, United Technologies announced its intention to split into three companies, while General Electric’s new CEO Larry Culp has made it clear in recent weeks, he is shopping the company’s assets in an attempt to turn around the embattled icon.

Globally, demand from abroad to buy U.S. companies has been stifled by uncertainty surrounding trade and because of this Gale said manufacturing companies need to integrate how trade and tariffs will impact the overall strategy in the M&A process.

In addition Gale said companies should also plan where the actual goods will be manufactured.  “We might see a reshuffling of the chess board a little bit around manufacturing companies in M&A, ” he said.

Technology is also transforming the manufacturing sector, according to Gale, and companies need to pay attention to skilled labor as they are looking at deals.

“We are seeing a shift,” he said. “And the shift that we are seeing globally is from a very focused unskilled labor force to a skilled labor force.”