The Role of “Animal Spirits” in M&A
Strategic mergers and acquisitions (M&A) have faced significant challenges in recent years. Rising inflation, global trade tensions, shifting tariffs, and overall economic volatility have caused many market participants to slow down or step back. Deal activity has declined, and both buyers and sellers have become more cautious. However, thoughtful M&A still takes place when acquirers see clear strategic value.
Understanding “Animal Spirits” in Modern M&A Manufacturing
John Maynard Keynes introduced the concept of “animal spirits” to explain how emotion and confidence influence economic decisions. This idea remains highly relevant today. Strategic buyers are not placing blanket bets on the market. Instead, they are selectively optimistic, targeting specific sectors, business models, or operational strengths that show potential to perform well despite uncertainty.
When this confidence is grounded in strong business fundamentals, valuations often increase. Buyers are willing to pay a premium for companies they believe can outperform over the next three to five years.
What Buyers Are Prioritizing
In the current environment, buyers are focused on acquiring businesses with resilient characteristics such as:
- Manufacturing operations based in the United States, which limit exposure to international logistics issues and tariffs
- Control over supply chains and access to domestic sourcing
- Involvement in sectors with favorable long-term trends like electrification, automation, and infrastructure
- Proprietary technology or intellectual property that strengthens competitive positioning
This kind of confidence is not speculative. It is rooted in clear structural advantages and the ability to adapt to changing conditions.
The Role of Trade Policy and Tariffs
Trade policy has added new layers of complexity to the M&A process, especially for U.S.-based manufacturers. The U.S.-China trade conflict, metal tariffs, and reshoring initiatives have created pricing uncertainty and disrupted supply chains.
Despite these challenges, some companies are thriving. Firms with domestic operations, exposure to reshoring, or roles in key infrastructure and technology sectors are becoming more attractive. For strategic buyers, trade policy is not necessarily a barrier but a lens through which value can be identified.
When confidence is supported by performance indicators like strong order pipelines or unique capabilities, competition for those assets can increase, pushing valuations higher.
Examples of Strategic Acquisitions
Several recent acquisitions show how strategic buyers are moving ahead when they identify long-term value. Here are three examples:
- Voestalpine’s Acquisition of MetalForming Inc.
Even with pressure from tariffs and market uncertainty, Voestalpine acquired MetalForming to strengthen its U.S. footprint. The deal provided local production capacity and reduced tariff exposure.
- Amphenol’s Acquisition of Connor Manufacturing Services
As domestic manufacturing gained appeal, Amphenol acquired Connor to secure its supply chain. The move supported trends in electrification and reinforced the company’s U.S. manufacturing strategy.
- Murata Manufacturing’s Acquisition of Resonant Inc.
Murata acquired Resonant to enhance its 5G capabilities and to integrate advanced design functions within the U.S. ecosystem.
Each of these moves reflects a strategic approach that is both cautious and forward-looking. Buyers are not ignoring risks, but they are acting decisively when they see clear advantages.
Implications for Business Owners, Buyers and Advisors
Strategic buyers are still active, especially when a business demonstrates the ability to adapt and grow under current conditions. For M&A advisors, it is important to frame the long-term value story clearly and convincingly. Buyers are looking for more than short-term results. They want resilience and future potential.
For business owners, the takeaway is encouraging. Even in a more cautious market, opportunity exists. Companies that highlight structural strengths and align with long-term trends can still attract premium offers. When buyer confidence intersects with solid fundamentals, the result is often a higher valuation.
Animal spirits may not dominate the market right now, but they continue to influence it in meaningful ways.
About the Author
Managing Director
Manufacturing & Distribution Practice Leader
Dan Shea has over 25 years of experience advising business owners and executives on complex transactions, strategic initiatives, and growth opportunities. He leads the Manufacturing & Distribution Practice, and helps drive business development and transaction advisory efforts across the broader Investment Banking Group. Prior to joining the firm, Mr. Shea held senior roles at BDO Capital, Hadley Partners, WYCampbell & Company, and Ernst & Young Corporate Finance. He holds an MBA in Finance from Case Western Reserve University and a BA in Economics from the University of Michigan. Dan has been cited for his expertise by various publications including The Wall Street Journal, Dow Jones’ Private Equity Analyst, U.S. News & World Report, and other leading publications.
Disclosure
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