Industrial and manufacturing ranked fourth among industries expected to see the most M&A activity this year, cited by 26% of respondents. Although its increase from 20% last year may seem marginal, it actually reflects one of the larger year-over-year gains among the industries tracked in our survey. As buyers move beyond pure cost-cutting narratives toward a more strategic view of what manufacturing assets can support, that bump aligns with a broader repositioning underway in the sector.

Part of that shift is directly tied to the AI infrastructure buildout that is reshaping deal sentiment elsewhere in this report. As the physical backbone supporting data center and grid expansion, manufacturers of power equipment, thermal management systems, grid controls, and connected industrial systems are attracting increasing interest. What started as a technology and energy story is now an industrial one, with potential buyers seeking the equipment and components that enable AI infrastructure to be built at scale.

Automation was once viewed as a core part of an asset’s present-day value, but with industry forecasts suggesting the share of manufacturers running highly automated processes could double by the end of the decade, dealmakers see it more as a future upside. Labor constraints, persistent cost pressures, and the need for more flexible production are keeping automation high on the M&A agenda, with buyers targeting robotics, industrial software, sensors, and inspection technology to improve throughput and reduce reliance on constrained labor markets. 

Supply chain exposure is another defining constraint on how deals get structured. More than a quarter of survey respondents cited tariffs among their top three obstacles this year, and that pressure is especially acute in a sector where sourcing, logistics, and cost structures are directly exposed to trade policy. Companies are responding by reviewing manufacturing footprints, localizing production closer to end markets, and reconfiguring supply chains to reduce exposure rather than waiting for policy certainty that may not arrive soon.

Private equity is still active in the manufacturing sector, but its focus is now concentrated on fragmented markets where roll-up strategies and operational improvements can create value, rather than on chasing scale for its own sake. For sellers, that means the operators best positioned to command strong valuations are those that can point to real automation investment, a de-risked supply chain, and margins that hold up under a higher cost-of-capital environment, not just top-line growth.