by Mark Humphries, partner, Catalyst Corporate Finance

Momentum in M&A continued in the second half (H2) of 2013 with 20 reported deals, compared to 15 in the first half of the year. Although the overall volume of deals has not quite matched 2012’s record level, the drivers underpinning M&A – expansion into strategically important markets, strengthening platforms and integrating supply chains – remain firmly in place.

Complementary markets and products underpin strategic deals

One of the largest deals in H2, and for the year, was Toray Industries’ £364 million acquisition of Zoltek. Acquiring Zoltek represented a strategic goal to access a specific market – Toray’s product set has been focused on regular tow carbon fibre typically used in aircraft applications and this deal provides it with access to the large tow carbon fibre used in wind power and automotive applications. These are sectors where significant increases in demand are forecast and others are making significant commitments, as demonstrated by Mitsubishi Heavy Industries announcement in the summer that it has established an offshore wind turbine joint venture with Vestas Wind Systems – Zoltek is a major supplier to Vestas.

Similarly, Fives’ acquisition of MAG Americas, a global supplier of high performance machining solutions and composite processing such as high-precision machine tools, provides it with access and scale to high- growth sectors including aerospace and oil and gas.

Zoltek was not Toray’s only deal during H2. Toray is forecasting sales of carbon fibre to industrial applications like automotive to be double its sales to aerospace applications by 2020 and in July it acquired a stake in Plasmon Carbon Composites (PCC). Toray is a supplier to PCC, which is the sole US tier 1 supplier of CFRP-based exterior body panels for performance and luxury cars of US automobile manufacturers. For Toray, this investment enables it to gain more control over its US supply chain, maintain a distribution channel to US manufacturers and create a manufacturing and development base for CFRP auto parts in North America.

Autodesk has continued to strengthen its presence in the manufacturing sector, following up its March 2013 acquisition of composite software specialist Firehole Technologies with the £173 million purchase of CADCAM software leader Delcam Plc. Delcam’s software is used in a wide range of applications across the automotive, aerospace, plastics and composites industries and the deal highlights the growing importance of technology in manufacturing to support more efficient product design and consistent output.

Private equity continues to build platforms

AGC Aerospace and Defense has acquired its fifth business, partnering with The Edgewater Funds to acquire Tods Aerospace & Defence to strengthen its presence in Europe, Asia and the Middle East. Cathay Investments acquired composites distributor Umeco Distribution from Cytec. The business has long-term supply relationships with a number of composites manufacturers including Jushi Group and Cytec.

Attractive M&A environment in 2014

Looking ahead, M&A market conditions remain very favourable. Large strategic acquirers across the supply chain will remain acquisitive as they look to secure capacity in existing and complementary markets, enhance their technological expertise and support their growth objectives as the use of composites across multiple end markets ramps up. This is presenting small to mid-sized manufacturers with attractive opportunities to scale and broaden their end markets.