en.Wedoany.com Reported - Merger and acquisition activity in the industrial manufacturing sector over the past year has climbed to $173 billion, a 28% increase from $135 billion in fiscal year 2025. According to the mid-year 2026 outlook report from professional services firm PwC, this surge in M&A is primarily driven by the convergence of artificial intelligence infrastructure, grid modernization, and defense/resilience building. Large-scale deals, scope-driven acquisitions, and strategic buyers are deploying capital in unprecedented ways, with macroeconomic uncertainty having become a permanent feature.
The report notes that large transactions dominate, with deals exceeding $5 billion now accounting for 56% of total transaction value, a significant increase from 18% in fiscal year 2024. Excluding large transactions, the average deal size grew by 31% compared to fiscal year 2024, reaching $169 million. PwC data shows that average transaction values have steadily climbed over the past two years: $155 million in fiscal year 2024, $288 million in fiscal year 2025, and $375 million during the latest fiscal year. The 139% increase indicates that buyers are willing to pay a premium for transformative capabilities rather than merely incremental scale.
In the convergence space, electrical equipment, thermal management, automation and controls, and advanced components are attracting ultra-high valuations. From 2021 to 2025, the industrial manufacturing sector saw 155 convergence transactions with a total value of $532 billion, surpassing any other industrial subsector. AI and automation have now become central to investment due diligence, with investors demanding evidence of AI's impact on the profit and loss statement—including productivity gains, labor cost offsets, and predictive maintenance savings—before paying premium valuations.
Private equity remains active in the upper middle market, but strategic acquirers accounted for 86% of transaction value over the past 12 months and 86% of deal volume year-to-date in 2026. Corporate simplification, exemplified by Honeywell's three-way split, is generating a substantial pipeline of divestitures involving automotive-related, advanced materials, and non-core industrial assets, as companies realign their portfolios toward electrification, software, and defense-related manufacturing.
The macroeconomic backdrop has become a permanent structural feature rather than a cyclical headwind. Cross-border transaction value has reached 56% of total value over the past 12 months, up from 30% in fiscal year 2022, driven by global supply chain restructuring and reshoring investments. Notably, the value of deals targeting the U.S. nearly doubled in fiscal year 2025 to $72 billion. Tariffs, geopolitical friction, interest rate volatility, and AI-driven infrastructure demand are now constant factors, fueling rather than dampening M&A activity.
The report identifies two forces that will define industrial manufacturing M&A. First, convergence: AI infrastructure, grid modernization, and defense/resilience spending are channeling capital toward the same constrained industrial supply base—namely, electrical equipment, thermal management, automation and controls, and advanced components. Value is concentrated in assets that serve multiple demand streams simultaneously, commanding premiums of 15% to 30% above the industry median, peaking in AI computing and data center-related assets. Second, the divestiture pipeline: Since 2021, nearly 69% of industrial companies that executed acquisitions exceeding $5 billion have also undertaken divestitures, with this ratio rising to over 86% among serial acquirers. Attractive divestiture projects in advanced materials, automation components, and energy transition assets will not wait for macroeconomic conditions to clear.
For dealmakers, the report recommends betting on convergence rather than single-theme exposure. Assets serving two or three demand streams possess enduring pricing power, while single-demand-stream assets face selective competition. Due diligence should test capability density against convergence demand rather than cost reduction against a single end market. The report also calls for measurable AI returns, with buyers now requiring evidence of productivity improvements—including throughput gains, labor cost offsets, and predictive maintenance savings—on the profit and loss statement before paying premium valuations. The era of paying a premium for AI narratives without quantifiable impact is ending. For divestitures, early action is advised, as sellers currently undertaking divestitures are fully aware of what they intend to fund next.
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