Manufacturing: Q3 2026 Report

We are pleased to present our 3Q 2026 report. Manufacturing activity has now expanded for nine consecutive months, the pace of new deal activity has been higher this year and engagement volume and buyer interest remains healthy. This is particularly true for “A” assets and companies in more attractive end markets such as Aerospace, Space & Defense and Data Centers.

Manufacturing extended its expansion through the third quarter, with the Purchasing Managers Index (“PMI”) above 50 for the 9th straight month, including a four-year high of 55.6% in July before moderating to 54.5% in September. M&A activity across our subsectors remained active, with 127 manufacturing-adjacent transactions announced in the quarter totaling approximately $41.3 billion. We continue to see engagements being signed and inbound interest from business owners considering a sale, and we expect this to continue as capital earmarked for deployment by private equity funds remains elevated.

Earlier this year’s announcement of wide-spread Tariffs continued to evolve rather than fully resolve: the initial Section 122 tariffs expired in July and were replaced by a tiered Section 301 structure, Section 232 tariffs on steel, aluminum, and other goods remain in force, and the USMCA review that began in July is expected to run into 2027. This is a more defined, if still shifting, framework than the acute uncertainty earlier in the year, and it continues to factor into manufacturers’ sourcing and investment decisions. Separately, the U.S. military’s Operation Epic Fury against Iran concluded in May without the sustained disruption to energy markets or supply chains that had been a concern.

We enter the second half of the year with a still constructive, view on both manufacturing production and related M&A activity. Our thesis reflects:

• The tax and depreciation provisions from the “One Big Beautiful Bill” continue to support capital investment.
• Interest rates did not ease as broadly as expected – the Federal Reserve, under new Chair Kevin Warsh, held rates steady for most of the year before raising the federal funds rate 25 basis points to 3.75%-4.00% in September, a reminder that the rate path remains data-dependent rather than a one-way move lower.
• Tariffs have moved from acute uncertainty toward a more defined, if still evolving, policy framework, which is helping some businesses plan with greater confidence.
• Private Equity Funds remain well-capitalized and under pressure to deploy capital.

Manufacturing Data

ISM PMI

Economic Data

Industry Trends

Manufacturing Expansion Extends to a Ninth Straight Month

The Institute for Supply Management’s Purchasing Managers Index (“PMI”) registered 54.5% in September, marking nine consecutive months of expansion (readings above 50%) and extending a run that included a four-year high of 55.6% in July. We were not able to confirm an updated National Association of Manufacturers (“NAM”) Manufacturers’ Outlook Survey result for the third quarter at the time of this report – NAM’s first quarter 2026 survey, conducted February 10th to 26th, showed 75.3% of manufacturers reporting a positive outlook, and its third quarter survey was still in the field as of this writing.

Reshoring and Automation Investment Continues

U.S. manufacturing technology orders rose 28.9% year-over-year through April 2026 to $2.19 billion, according to AMT data, and the practical, on-floor deployment of industrial AI was a centerpiece of September’s IMTS 2026 show in Chicago, where a new “Industrial AI Arena” focused on predictive maintenance, quality inspection, and edge-versus-cloud deployment questions across machining, robotics, and additive platforms.

Global M&A Activity Remains Near Record Levels

Global M&A reached a record $2.8 trillion in the first half of 2026, up 48% year-over-year, with industrial manufacturing a notable contributor as AI infrastructure buildout, grid modernization, and defense demand compete for the same industrial supply base. Within the subsectors we track, Industrials accounted for 105 of the 127 manufacturing-adjacent transactions announced in the third quarter, with 13 deals exceeding $1 billion in disclosed value – consistent with the mega-deal-driven pattern that has characterized the year.

Supply Chains are moving from permanent to flexible

Uncertainty regarding policy changes and geo-political risk is pushing manufacturers to design networks that flex by geography, backed by shared data, scenario planning, and resilient supplier partnerships. This is also driving M&A in cases where manufacturers are looking to buy to fill gaps.

What Are We Reading?

Manufacturing Expands for a Ninth Straight Month, ISM Reports

The ISM Manufacturing PMI registered 54.5% in September, the ninth consecutive month of expansion, as the sector continued to build on a four-year high of 55.6% reached in July. Read here.

IMTS 2026 Puts Industrial AI to Work on the Shop Floor

At September’s IMTS show in Chicago, exhibitors and attendees focused less on AI as a concept and more on practical deployment – predictive maintenance, quality inspection, and edge-versus-cloud questions – as U.S. manufacturing technology orders climbed 28.9% year-over-year through April. Read here.

Global M&A Hits a Record $2.8 Trillion in First-Half 2026

Mega-deals and AI-infrastructure-driven demand pushed global M&A to a record pace in the first half of the year, with industrial manufacturing a notable beneficiary as AI infrastructure, grid modernization, and defense needs compete for the same supply base. Read here.

Tariff Rules Continue to Shift for U.S. Manufacturers

Section 122 tariffs expired in July and were replaced by a tiered Section 301 structure, Section 232 tariffs on steel, aluminum and other goods remain in force, and the USMCA review that began July 1st is expected to continue into 2027 – a reminder that trade policy, while more defined than earlier in the year, is still a moving target for manufacturers. Read here.

M&A Activity

Manufacturing M&A activity remained robust in the third quarter, though the pace has moderated from the record highs set earlier in the year. We tracked 127 announced transactions across our monitored subsectors totaling approximately $41.3 billion in disclosed value, with Industrials again the most active sector (105 transactions) and Materials and Information Technology each contributing 11. Thirteen deals exceeded $1 billion in value, underscoring the continued role of megadeals – rather than volume – in driving headline M&A figures this year.

Aerospace and Defense Capital Goods

Electrical Components

Electronic Components & EMS

Healthcare Equipment

Industrial Machinery & Components