Professional services firm PwC released its 2026 midyear outlook, which found that industrial manufacturing merger & acquisition (M&A) activity climbed to $173 billion over the past year. The surge represents a 28% increase over fiscal year 2025's $135 billion.
PwC attributed the increase to the convergence of AI infrastructure, grid modernization and defense/resilience. Additionally, mega-deals, scope-driven acquisitions and strategic buyers are deploying capital like never before, while macroeconomic uncertainty has become a permanent feature.
Mega-deals
The report showed that mega-deals are dominating, with transactions above $5 billion now making up 56% of deal value—up from 18% in fiscal year 2024.
Excluding mega-deals, the average transaction size grew 31% from fiscal year 2024 to $169 million. PwC noted that average deal values have climbed steadily over the past two years: $155 million in fiscal year 2024, $288 million in fiscal year 2025 and $375 million in the latest annual period. The 139% increase suggests buyers are paying up for transformative capabilities rather than incremental scale.
Convergence
Power equipment, thermal management, automation and controls and advanced components are attracting outsized valuations. PwC stated that, from 2021 to 2025, industrial manufacturing accounted for 155 convergence deals and $532 billion in transaction value, more than any other industrial subsector.
The report added that AI and automation are now central to investment diligence. Investors increasingly demand evidence of AI impact in the income statement through productivity improvements, labor cost offsets and predictive maintenance savings, before committing to premium valuations.
Strategic buyers
Private equity remains active in the upper mid-market. Strategic acquirers, however, account for 86% of the last 12 months' (LTM) deal value and 86% of year-to-date 2026 volume, according to the report.
Corporate divestitures
Conglomerate simplification, exemplified by Honeywell's three-way separation, is generating a rich pipeline of carve-outs across automotive-exposed, advanced materials and non-core industrial assets as companies realign portfolios toward electrification, software and defense-related manufacturing.
The macroeconomic backdrop has become a permanent structural feature rather than a cyclical headwind. Cross-border deal value has reached 56% of the LTM total, up from 30% in fiscal year 2022, driven by global supply chain reconfiguration and reshoring investments, with U.S.-targeted deal value nearly doubling in fiscal year 2025 to $72 billion.
Tariffs, geopolitical friction, interest rate volatility and AI-driven infrastructure demands are now constant factors, fueling M&A rather than suppressing it.
Two forces will define industrial manufacturing M&A
Convergence
AI infrastructure, grid modernization and defense/resilience spending are pulling capital toward the same constrained industrial supply base: power equipment, thermal management, automation and controls and advanced components.
PwC says this is concentrating value in assets that serve multiple demand streams simultaneously, and premiums reflect it: 15% to 30% above sector medians, peaking in AI compute and data center-exposed assets.
Divestiture pipeline
Among industrial companies executing $5 billion-plus acquisitions since 2021, nearly 69% also divested, rising above 86% for serial acquirers. The most attractive carve-outs in advanced materials, automation components and energy transition assets will not wait for macro clarity.
What dealmakers should do now
Underwrite convergence, not single-theme exposure
Assets serving two or three demand streams command durable pricing power. Assets serving only one face selective competition. Diligence should stress-test capability density against converging demand, not cost takeout against a single end market.
Demand measurable AI returns
Buyers now require evidence of productivity gains in the income statement, including throughput improvements, labor cost offsets and predictive maintenance savings, before paying premium valuations. The era of paying up for AI narratives without quantifiable impact is ending.
Move early on carve-outs
Sellers processing divestitures know exactly what they are funding next. Position ahead of the process.
