UK manufacturing began to recover during 2023 as input prices and supply chains became more stable. Businesses supplying aerospace and defence markets also benefited from growing order books as national defence budgets increased.
Despite this improvement, workforce shortages, geopolitical disruption and high borrowing costs continued to affect the sector. Investment in automation, sustainable operations and more resilient supply chains was expected to remain central to manufacturing growth.
Polestar Corporate Finance’s Manufacturing & Distribution 2023/2024 Sector Review and Outlook examines M&A activity, public-company valuation multiples and investor appetite across aerospace and defence, consumer and branded products, construction services, food production, industrial technology, specialist manufacturing, and printing and packaging.
The sector recorded:
Trade transactions dominated activity across the wider manufacturing and distribution sector. Venture capital represented a smaller proportion of overall transactions but played a particularly important role in specialist manufacturing.
Of the 34 specialist manufacturing transactions identified during 2023, 32 involved venture capital.
More stable supply chains and input costs supported a recovery during 2023.
Manufacturing was expected to maintain a stable upward trajectory despite:
The sector was forecast to grow at a compound annual growth rate of 3.6% to 2028.
The UK Government pledged £4.5 billion to manufacturing through its Advanced Manufacturing Plan.
The support was intended to help stabilise UK manufacturing and assist businesses investing in more sustainable operations.
The Department for Business and Trade’s Battery Strategy also aimed to position the UK at the forefront of specialist manufacturing and aerospace and defence technology. Its objective was to create a resilient global green-battery supply chain by 2030.
Global manufacturers continued to invest in smart machinery and factories as part of Industry 4.0.
These systems generate data that can improve efficiency throughout manufacturing processes and supply chains.
Smaller regional manufacturers needed to identify accessible technologies that would allow them to remain competitive. Relevant technologies included:
Internet of Things technology could be used to monitor stock levels in real time, supporting more efficient purchasing and inventory management.
Automated guided vehicles offered an alternative to using forklift trucks to move parts to production lines.
Automating this labour-intensive activity allowed employees to be reassigned to skilled work that could not yet be automated.
AI and Industry 4.0 technologies were expected to replace some lower-skilled activities while increasing the value and productivity of each hour worked.
Automation could also release employee time for training without interrupting production.
The UK experienced a shortage of approximately 74,000 factory workers, costing the economy around £6.5 billion.
Recruitment was made more difficult by graduates and school-leavers choosing employment in other sectors.
The age profile of the workforce created an additional challenge. Almost one-third of manufacturing employees were aged over 55 in 2022.
Manufacturers were expected to place greater emphasis on:
Manufacturing supply chains had been disrupted by trade disputes, Brexit, COVID-19, blockages in the Suez Canal and Russia’s invasion of Ukraine.
Businesses responded by changing their supply-chain strategies and increasing their focus on domestic production.
Greater onshoring was expected to require increased automation. Companies providing the technology needed to support this transition were positioned to benefit.
Sustainability continued to influence manufacturing strategy and business value.
Consumer expectations, regulation and reporting requirements increased pressure on businesses to adopt more sustainable practices throughout their supply chains.
Manufacturers were investing in:
Waste reduction could support both environmental objectives and operating-cost efficiencies.
Smart factories also provided greater visibility over maintenance requirements. Preventing breakdowns or reductions in production capacity could support more consistent energy management.
Smaller companies faced greater challenges when funding sustainability initiatives. However, credible sustainable practices were considered valuable by private equity investors and could support preparations for a future sale.
Consumer and branded businesses remained popular with trade buyers.
The subsector recorded 103 trade transactions during 2023, representing a 2.83% decline compared with 2022.
Investors continued to seek premium assets for their portfolios, despite the reduction in transaction volumes.
The FSE Group completed 28 consumer and branded investments, making it the most active investor identified in the subsector.
Its investments covered businesses including food brands, clothing manufacturers and home-tool companies.
Aerospace and defence attracted significant private equity and venture capital investment during 2023.
A2E Industries completed 27 investments in the subsector.
Increased national defence budgets supported order books, while investors assessed which space technologies could change the market over the following decade.
European cumulative defence spending was estimated to increase from €700 billion to €800 billion by 2028.
This spending outlook supported forecasts for strong revenue and profit growth across aerospace and defence businesses.
Specialist manufacturing was particularly dependent on venture capital.
Of 34 reported transactions during 2023, 32 involved venture capital. This contrasted with the wider manufacturing market, where M&A and private equity transactions were more common.
Plug and Play Tech completed seven specialist manufacturing investments, with a particular focus on robotics and factory technology.
Investments included:
Industrial technology attracted investment in sensors, measurement systems, factory equipment and other advanced manufacturing systems.
Parkwalk Advisors invested in hard-science businesses and helped commercialise research developed at UK universities.
Its investment in Proxisense supported technology for environmental proximity sensing and fluid-contamination monitoring. These products were designed to improve the efficiency and performance of complex rotating equipment.
Nikon’s acquisition of Avonix Imaging demonstrated strategic interest in acquiring new technology to expand existing manufacturing capabilities.
Packaging investment increasingly reflected sustainability and waste-reduction requirements.
BGF invested in:
Biffa acquired Esterform Packaging to expand its green-packaging capabilities.
Trade and private equity transactions also included businesses producing specialist and retail packaging.
Technology and sustainability influenced transaction activity within construction services.
Browmer + Kirkland acquired Innovaré, reflecting demand for technology supporting the monitoring and design of high-quality, low-cost and low-carbon buildings.
SFC Capital completed four construction-services investments during 2023.
Listed manufacturing EBITDA multiples remained comparatively stable during 2023 despite supply-chain disruption and economic uncertainty.
The public-company comparison covered:
Forward EBITDA multiples remained close to current multiples across most of the subsectors reviewed.
Aerospace and defence recorded the highest average EBITDA multiple within the comparison set, supported by expected revenue and profit growth.
| Investor | Principal subsector | Investments in 2023 |
|---|---|---|
| A2E Industries | Aerospace and defence | 27 |
| SFC Capital | Construction services | 4 |
| The FSE Group | Consumer and branded | 28 |
| Parkwalk Advisors | Industrial technology | 2 |
| BGF | Printing and packaging | 3 |
| Plug and Play Tech | Specialist manufacturing | 7 |
Early-stage investors increasingly focused on sustainable manufacturing technologies during 2023.
| Acquirer | Principal subsector | Acquisitions in 2023 |
|---|---|---|
| Iveco Defence Vehicles | Aerospace and defence | 1 |
| Browmer + Kirkland | Construction services | 1 |
| Compagnie Financière Richemont | Consumer and branded | 1 |
| Nikon | Industrial technology | 1 |
| Biffa | Printing and packaging | 1 |
| Topcon | Specialist manufacturing | 2 |
These acquisitions demonstrated strategic interest in technology, sustainable packaging, construction innovation and specialist manufacturing capabilities.
Inspirit Capital acquired This Works from Canopy Growth for approximately £9.3 million in December 2023.
The consideration included £2.7 million in cash, a loan note and a contingent earn-out.
Rcapital Partners acquired STI for approximately £7.5 million in October 2023.
Rcapital planned to refinance the business and support growth within its core defence and aerospace markets.
Operational Solutions, backed by BGF, acquired Nexus Nine in October 2023.
The transaction brought together businesses developing technology and services for aircraft operations.
Carton Group, backed by Waterland Private Equity Investments, acquired Wrapology for approximately £5.94 million in October 2023.
Nabo Group, backed by Fidelio Capital, acquired Pinnacle for £10 million in October 2023.
Pinnacle was previously owned by Longmead Capital.
Cambrian Vision Systems raised approximately £3.75 million in November 2023 from Digital Media Professionals and other investors.
The funding was intended to expand the business within electronics and develop solutions addressing labour shortages and productivity.
MDA acquired SatixFy’s UK digital payload division for approximately £32.87 million in October 2023.
SatixFy’s satellite and semiconductor technology added UK production capabilities to MDA’s existing robotics, satellite-systems and geointelligence operations.
Nikon acquired Avonix Imaging in April 2023.
The combination brought together specialist X-ray inspection and measurement technology for manufacturing applications.
Topcon acquired DDK Positioning in February 2023.
DDK developed resilient and accurate satellite-positioning technology. Its systems supported Topcon’s infrastructure and agricultural services.
Franchise Brands acquired hydraulic-hose specialist Pirtek for £224 million in April 2023.
The transaction represented reported multiples of:
Pirtek could receive a further £12.2 million subject to future performance conditions.
Headlam acquired Birch Close Trading for £4.1 million in January 2023.
Birch Close Trading was the parent company of Melrose Interiors, a manufacturer, importer and distributor of rugs and flooring products.
The transaction represented reported multiples of:
Melrose Interiors also operated across third-party logistics, upcycling, recycling and business-to-business and business-to-consumer fulfilment.
The sector entered 2024 on a stable but improving trajectory.
Important areas of focus included:
The sector recorded 643 M&A transactions, 310 private equity transactions and 110 venture capital transactions. M&A accounted for the largest proportion of overall activity.
Specialist manufacturing was particularly venture-capital-led. Venture capital was involved in 32 of the 34 reported transactions completed during 2023.
Workforce shortages, supply-chain disruption, high borrowing costs, geopolitical uncertainty and the cost of investing in automation and sustainability were among the principal challenges.
The UK faced a shortage of approximately 74,000 factory workers, costing the economy around £6.5 billion.
Smart machinery, Internet of Things technology, automated guided vehicles and factory-optimisation systems are being used to collect data, improve production efficiency and automate labour-intensive tasks.
Trade disputes, Brexit, COVID-19, disruption in the Suez Canal and Russia’s invasion of Ukraine exposed weaknesses in international supply chains. Onshoring offered a way to improve resilience.
Sustainability was an important value driver. Private equity investors valued businesses implementing credible environmental practices, particularly where these improved efficiency or supported preparation for a future sale.
Aerospace and defence recorded the highest average listed-company EBITDA multiple among the subsectors reviewed, supported by forecast revenue and profit growth.
The sector was expected to maintain a stable upward trajectory, with investment focused on automation, workforce development, supply-chain resilience, sustainable production and defence-related manufacturing.
