Industry Report: Manufacturing Q4 2025 [FOCUS]

Key Report Highlights

• M&A Volumes Lag, but Recovery Expected in 2026
  Despite a sluggish year marked by uncertainty from tariffs and a weak purchasing managers’ index (PMI below 50), FOCUS expects a rebound in M&A activity. Key drivers for optimism include pro-business legislation like the “Big Beautiful Bill” (which offers tax cuts and accelerated depreciation), interest rate easing, and reduced tariff volatility—all of which are expected to unlock deal flow and production growth in 2026.
• Private Equity Takes the Lead in Manufacturing Deals
  Private equity continues to dominate M&A in the sector, supported by a surplus of undeployed capital and a range of buyout strategies—from small bolt-ons to platform-building. The scarcity of “A-tier” assets—defined by strong management, diversified revenue, and exposure to sectors like aerospace and data centers—has led to premium valuations, with some deals exceeding 15x EBITDA.
• Industry Shifts Spur Material Substitution and Automation
  Tariffs targeting key metals like copper, aluminum, and steel have spurred a shift toward alternative materials like composites and polymers. Meanwhile, automation adoption is accelerating as manufacturers retrofit operations in response to labor constraints and supply chain pressure. The trend section on page 6 notes that 2026 will be a pivotal year for factory automation expansion.
• Select Sub-Sectors Defy Broader M&A Decline
  While overall deal volume was down, Electronic Components, EMS, and Aerospace saw resilient M&A activity. Notable transactions include Parker Hannifin’s $9.25B acquisition of Filtration Group and SPX Technologies’ $300M purchase of Crawford United. These deals reflect a continued appetite for engineered products, defense assets, and scalable platforms.
• Advanced Manufacturing Commands Highest Public Valuations
  The valuation tables on pages 16–18 show strong public market multiples for Industry 4.0 players. Robotics & Automation, Industrial Software, and Optics firms are trading at EV/EBITDA multiples above 18x, while traditional sectors like tooling and material handling remain below 8x. This divergence underscores investor preference for innovation, automation, and supply chain enablement.

FOCUS Investment Banking is a national middle market investment bank providing M&A advisory, capital raising, and corporate finance services to privately held companies. Founded over 40 years ago, the firm specializes in advising lower middle market businesses—typically with $5 million to $300 million in revenue—across a broad range of industries including aerospace & defense, healthcare, technology, manufacturing, business services, and automotive.

With a team of seasoned professionals who bring deep operating and transactional experience, FOCUS delivers partner-led, tailored guidance on sell-side and buy-side M&A, growth capital, exit planning, and valuation services. The firm combines industry expertise with global reach through its affiliation with M&A Worldwide, offering access to international buyers and investors.

Headquartered in Washington, D.C., FOCUS also maintains offices in Atlanta, Chicago, Los Angeles, Miami, and Dallas. Securities transactions are conducted through FOCUS Securities LLC, member FINRA and SIPC.

Interested in sharing your industry reports? Contact: kaitlinn.thatcher@axial.net