Capstone Partners Reports: Industrials M&A Gains as Industry Players Navigate Shifting Economy

Core Insights - Capstone Partners released its Annual Industrials M&A Report, providing insights into public market valuations, macroeconomic conditions, M&A activity, and a 2025 outlook for the industry [1] Economic Overview - The U.S. Industrials industry faced a complex macroeconomic environment in 2024, with real GDP growth at 2.8%, down from 2.9% in 2023, primarily due to a slowdown in business investment [2] - Consumer spending remained robust, with the Personal Consumption Expenditure (PCE) Price index increasing by 5.3% year-over-year, driven by rising incomes and improved labor market conditions [2] - Construction spending rose by 4.3% year-over-year to $2.2 trillion, supported by the Infrastructure Investment and Jobs Act (IIJA) and Inflation Reduction Act (IRA) [2] M&A Activity - Private equity firms were active in the Industrials M&A market, with strategic transactions making up 58.6% of deals in 2024, while private equity buyers accounted for 41.4% of deal activity, down from 43.7% in 2023 [2] - A valuation gap due to sellers' slow adjustment of pricing expectations contributed to stalled transactions [2] Valuation Trends - M&A valuations averaged 9.0x EV/EBITDA in 2024, a decrease from the previous year, while the Dow Jones Industrial Average ended at 16.4x EV/EBITDA, up from 14.7x in 2023 [3] - High-demand segments like Engineered Products (18.1x) and HVAC (17.1x) performed well, while cyclical segments such as Environmental Health & Safety (11.6x) and commodity-based manufacturing like Metals (7.5x) and Chemicals (7.3x) faced pressure [3]