The UK manufacturing and industrial sector entered 2025 facing a complex combination of improving economic conditions, persistent margin pressure and continued uncertainty around global trade.
Despite these challenges, merger and acquisition activity remained resilient. Manufacturing and industrial businesses recorded one of the strongest year-on-year increases in UK deal activity, supported by strategic buyers, private equity investors and overseas acquirers seeking specialist capabilities, resilient market positions and opportunities for consolidation.
This review examines the economic environment, the main trends affecting UK manufacturers and the factors shaping manufacturing and industrial M&A during the first half of 2025.
The UK economy grew by 0.7% during the first quarter of 2025. Growth was supported by services, manufacturing activity, household spending and an increase in exports ahead of expected tariff changes.
However, momentum weakened during the second quarter. UK GDP contracted by 0.3% in April as businesses faced fiscal pressures, a softer labour market and uncertainty surrounding international trade.
The wider global outlook also became more cautious. Forecasts from the World Bank and Morgan Stanley indicated global GDP growth of approximately 2.3% to 2.5% for 2025, compared with 3.5% in 2024.
The principal risks included:
Inflation was expected to continue easing globally, although tariff-related cost increases remained a significant concern for sectors including automotive, electronics, aerospace and pharmaceuticals.
Overall UK M&A activity increased modestly during the period. Deal volumes strengthened from the first to the second quarter, with further momentum anticipated during the remainder of 2025.
Manufacturing and industrial transactions recorded particularly strong growth compared with several other areas of the UK market. Activity was supported by investment in technology, demand for specialist manufacturing capabilities and the continued expansion of established corporate buyers.
Corporate acquirers accounted for approximately 62% of UK transactions during H1 2025, broadly in line with the two-year average of 63%.
Private equity buyouts represented approximately 31% of transactions, while growth capital investments accounted for a further 7%.
The balance between strategic and financial buyers suggests that UK manufacturing businesses continue to appeal to a wide range of investors, particularly where they offer:
International trade remained one of the defining issues for UK manufacturers during the first half of the year.
US tariffs on UK steel and aluminium exports disrupted established trade routes and increased uncertainty for companies with significant exposure to North America.
At the same time, Asia and the Middle East became increasingly important markets for UK exporters. These regions accounted for more than 34% of UK goods exports, compared with 27% in 2023.
Manufacturers responded by reviewing their international strategies and considering opportunities across Europe, India, the Gulf states and other markets offering more predictable trading arrangements.
Supply-chain resilience also became a greater strategic priority. Businesses increasingly assessed:
For buyers and investors, the resilience of a target company’s supply chain is becoming an increasingly important part of commercial and operational due diligence.
UK manufacturing output fell during the first quarter of 2025, representing the first first-quarter decline in more than a decade.
Output subsequently recovered during the second quarter, although new orders remained comparatively weak. Export demand improved, while domestic orders continued to be subdued.
This created a potential mismatch between production levels and confirmed demand. Businesses that produce ahead of orders risk tying up cash in inventory and increasing their exposure to unsold stock.
Although confidence improved during the period, output forecasts remained optimistic when compared with actual performance. Effective scenario planning and accurate demand forecasting therefore remain central to protecting working capital and profitability.
Profit margins remained under pressure throughout the sector.
UK selling prices and export prices increased, but many companies continued to experience rising costs across:
Manufacturing margins remained negative for a fourteenth consecutive quarter, demonstrating the difficulty businesses faced in recovering inflationary costs from customers.
Companies capable of demonstrating disciplined pricing, strong procurement processes and effective cost control are likely to be viewed more positively by investors and acquirers.
Recruitment activity remained cautious during H1 2025. Manufacturing headcount increased only marginally, while the sector’s vacancy rate fell to its lowest level since early 2021.
Lower vacancy rates do not necessarily indicate that skills shortages have been resolved. Many manufacturers continue to struggle to recruit employees with the technical, digital and engineering capabilities required to support automation and more advanced production processes.
Investment intentions also weakened. However, businesses continued to prioritise projects capable of delivering a measurable return, particularly in:
A pause in wider capital expenditure does not necessarily mean that investment has stopped. Instead, management teams are applying greater scrutiny to proposed projects and focusing on those with a clear operational or financial benefit.
UK government policy during the period focused on planning reform, infrastructure investment, business growth and addressing skills shortages.
Measures included a commitment of £600 million to support the training of 60,000 new construction workers.
Manufacturers were also awaiting greater clarity from the UK Industrial Strategy, particularly around long-term support for priority industries, investment incentives and the transition to lower-carbon production.
Businesses that remain close to industry groups and government initiatives may be better positioned to access funding, influence policy and respond quickly as new support becomes available.
Approximately half of UK manufacturers reported confidence in their ability to achieve net zero.
Around 60% planned to invest in emissions reduction, while an even larger proportion were focused on reducing energy costs.
This distinction is important. For many manufacturers, the commercial case for lower energy consumption is currently more immediate than the language of sustainability alone.
Projects that reduce energy use can support both objectives by:
A credible net-zero roadmap does not need to begin with major capital expenditure. Businesses can start by identifying lower-cost efficiency measures, assessing climate-related risks and setting realistic objectives.
Food and drink remained the UK’s largest manufacturing subsector, accounting for approximately 18.7% of manufacturing gross value added.
The subsector was expected to outperform the wider manufacturing market during 2025, with forecast output growth of 1.6%, compared with an expected decline across manufacturing as a whole.
However, performance varied significantly within the market.
Breweries faced particularly difficult conditions. Forty-three UK breweries became insolvent during the year to February 2025 as businesses dealt with overcapacity, higher costs and changing consumer demand.
These pressures also created opportunities for consolidation. Groups including Keystone Brewing Group acquired several independent breweries during the period as they sought to build scale and develop broader brand portfolios.
Food production continued to attract both UK and international buyers. Acquirers targeted established brands, manufacturing capacity and access to specialist product categories.
Public market valuation multiples remained broadly stable during H1 2025.
Specialist manufacturing and industrial technology companies experienced a modest decline in valuations during the early part of the second quarter as investors reacted to higher input costs and supply-chain disruption. Many listed businesses subsequently recovered.
Revenue multiples across food production and printing and packaging were comparatively stable.
The outlook remained cautious. A prolonged period of trade uncertainty or further margin pressure could result in valuation compression. Businesses seeking investment or considering a sale should therefore focus on the quality and sustainability of earnings rather than relying solely on revenue growth.
Aerospace valuations were particularly sensitive to tariff uncertainty during February 2025.
The prospect of a 10% US tariff on UK aerospace products created concern among investors, while negotiations over a possible sector-specific exemption added further uncertainty.
EBITDA valuation multiples fell more sharply than revenue multiples because aerospace profitability remained exposed to rising labour, material and input costs. Revenue was comparatively resilient due to the sector’s reliance on long-term contracts.
The long-term outlook nevertheless remained supported by investment and innovation.
Key growth drivers included:
The UK aerospace industry supported more than 100,000 jobs and contributed approximately £13.6 billion to the UK economy in 2024.
Private equity remained an important source of capital for UK manufacturing businesses.
PE-backed transactions accounted for approximately 34% of manufacturing and industrial deals during the first quarter of 2025, compared with 26% during the final quarter of 2024.
Investors continued to use platform and bolt-on acquisition strategies to:
UK manufacturers also continued to attract overseas investment, particularly within food production, aerospace and specialist industrial technology.
International acquirers are often attracted to British manufacturing businesses because of their engineering expertise, specialist products, recognised brands and access to established European and international customers.
A number of strategic buyers and private equity-backed groups completed acquisitions during H1 2025.
Examples included:
These transactions demonstrate continued appetite for consolidation where acquisitions can add production capacity, brands, customers or specialist expertise.
Several notable UK transactions were announced during the first half of 2025.
The range of transaction sizes demonstrates that buyer interest was not limited to large businesses. Smaller specialist manufacturers also attracted investment where they offered a strong niche position or strategic fit.
The operating environment remains demanding, but it also presents opportunities for well-prepared businesses.
Management teams should use scenario planning and avoid building production plans around overly optimistic demand assumptions. Output should remain closely aligned with confirmed orders and realistic sales forecasts.
Pricing should reflect the full impact of labour, energy, logistics and input costs. Businesses should also review procurement, supplier terms and operational efficiency to identify opportunities to offset margin pressure.
Capital expenditure should focus on projects with a clear expected return. Automation, digital systems, production efficiency and energy reduction are likely to remain priorities.
Manufacturers with significant reliance on one export market should assess opportunities to diversify customers and territories. Supply-chain dependencies should also be mapped and regularly reviewed.
Businesses should invest in existing employees and identify the capabilities needed to support automation, sustainability and future growth.
A credible plan should connect emissions reduction with measurable financial and operational benefits. Reducing energy use can improve margins while supporting wider sustainability objectives.
Manufacturers should monitor the UK Industrial Strategy, available funding schemes and changes to trade policy. Industry bodies can provide useful insight, representation and access to shared resources.
The UK manufacturing and industrial M&A market remained active during the first half of 2025, despite a difficult trading environment.
Strategic buyers continued to seek specialist capabilities and market expansion, while private equity investors remained focused on platform investments and consolidation opportunities.
Further interest is likely in businesses that can demonstrate:
Economic uncertainty may continue to affect transaction timing and valuations. However, high-quality UK manufacturing businesses are likely to remain attractive to domestic and international buyers.
Polestar Corporate Finance advises business owners, management teams, investors and corporate acquirers across the UK manufacturing and industrial sector.
Our team supports clients with business sales, acquisitions, management buyouts, valuations, debt and equity funding and strategic corporate finance advice.
Contact the Polestar Corporate Finance team to discuss your objectives.
