This is according to Deloitte's latest Manufacturing and Industrials M&A Predictions report, the biannual summary of the views of UK and European CEOs, CFOs and mergers and acquisitions (M&A) directors in the sector.
Almost 80% of business leaders are continuing to look for acquisitions, with almost six in ten expecting more deal activity in the next 12 months. This is in line with Deloitte's latest M&A Index, where deal volumes were predicted to be 8% higher in the first half of 2015 than in the same period last year.
Against the background of falling bond yields, four in ten respondents anticipate that deal multiples will increase in the next 12 months. This is up almost ten per cent in six months.
Duncan Johnston, UK corporate finance manufacturing industry leader at Deloitte, said: "We are seeing a continuing improvement in sentiment, both regarding the financial prospects for the sector, and for M&A activity. It has taken time for this confidence to impact on announced transaction volumes, which reach approximately $65.5 billion so far this year."
Bank debt remains the most popular form of deal finance to undertake acquisitions, with 77% of respondents citing it as the most likely source for the next 12 months. Most (77%) respondents expect that lower oil prices will somewhat or significantly reduce input costs. However, lower oil prices are also expected to reduce demand for products from customers, with over half citing the issue.
Ian Stewart, UK chief economist at Deloitte, said: "Lower prices reduce industries' input costs and also boost consumer spending power; these factors are some of the drivers of current European growth. Yet lower oil prices also dampen capital investment in the oil and gas sector. Weaker capex demand then feeds through to the capital goods manufacturing sectors."
Johnston concluded: "Looking to the second half of 2015, we expect the manufacturing and industrials sector will see an uptick in M&A volumes in the market. Driven by a strong sector performance, improving confidence and the continued good availability of finance, we expect deal activity to increase and valuations for quality assets to hold up, over the remainder of the year."
