Manufacturing Industry Report 2H 2026

• A shortage in skilled manufacturing labor may impede growth for companies looking to scale, but for owners looking to exit, it may also prove to be a tailwind as operations with a team of skilled, ready-to-work employees are increasingly attracting investors.
• Automation and modernization offer a path to overcoming the manufacturing labor squeeze, but it takes capital expenditure. Investors with money to spend may be willing to invest in a successful business where owners cannot or do not want to invest in automation and robotics.
• Manufacturing is seeing a resurgence in America on a rush to reshore spurred by incentives, federal policies, lessons learned during supply chain disruptions, and geopolitical instability.

A persistent shortage of skilled labor and the costly process of automation appear poised to fuel M&A activity from both sides of the equation, creating a sense of urgency for both buyers and sellers. Pressured by the need to scale, buyers appear to be hunting established manufacturing operations with a stable of highly skilled employees. It’s easier to buy an established team than build and train one piece by piece. A recent study by Deloitte and The Manufacturing Institute finds U.S. manufacturing will need nearly 4 million new skilled workers by 2034, and maybe half of those workers just won’t be there when the time comes. Incentives for manufacturing built into the 2025 federal tax and spending bill may make these acquisitions even more attractive. ¹ ² ³

And sellers, struggling to find the cash to install the tech and robotics required to grow – and wrestling internally with the thought of replacing a process already in place – may be finding a lifeline through the investments of a larger partner. While surveys show small to midsize manufacturers recognize a need to automate and modernize, the vast majority have not. For many, it’s a tight spot. The median price for an automation upgrade sits around $4.2 million. For a smaller operation, that’s significant. On the other side, a 2026 study by First National Capital Research concludes, “For most manufacturers, the cost of continued deferral now exceeds the cost of action.” The needed capital has to come from somewhere. ⁴ ⁵

Willing buyer, meet willing seller.

It’s estimated at any given time recently some 400,000 U.S. manufacturing jobs are unfilled. But the same report notes nearly 600,000 skilled and potentially employable workers are off the job. Part of this problem appears to be a geographical misalignment, stressing employers who can’t simply pack up and move. States developing policies to encourage investment aren’t the states where skilled manufacturing workers live. Where’s Waldo the Welder? Maybe he’s two states away. In an opinion piece for The Hill this year, U.S. Rep. Riley Moore (R-West Virginia) said the shortage of skilled workers is becoming a “national security threat.” Manufacturing needs more workers, but it needs them in the right places. In May, Jim Farley, CEO of Big Three automaker Ford, said the shortage of skilled workers has left the United States “the most vulnerable we’ve ever been.” ⁶ ⁷ ⁸

There is another factor stressing manufacturers in their hunt for suitable workers: reshoring. Fueled by a variety of factors and policies – the chaos of the pandemic era supply chain woes, tariffs, The CHIPS and Science Act, and The Inflation Act – reshoring announcements jumped by more than 50% in 2022. In 2024, more than 200,000 medium- and high-tech jobs opened in the country. Policies might import jobs, but they don’t import the skilled workers needed to run the factories. The workforce is the choke point, not the will to rebuild manufacturing. ⁹

Modernizing and automating, doing the work of absent workers with machines, would seem to be the answer, but manufacturers’ access to capital is feeling squeezed. Manufacturers, especially smaller ones, struggle to produce the documentation and assurances banks and traditional lenders want before turning handing over money. And while the founders of those operations may be experts in their field, delivering quality products on time, they probably aren’t experts in finance, putting them at a disadvantage to sophisticated investors, private equity, and the biggest operations with dedicated financial professionals in the C-suite. In addition, many of these owners are running profitable companies, and may be nearing retirement age. They see little reason to take on the risk and make the capital investment required to automate. ¹⁰ ¹¹

Labor issues, along with limited financing creating barriers to modernization, can combine to stymie efforts to scale, locking small and midsize manufacturers in place. As the co-founder of one recently acquired manufacturing company said, selling to a bigger player allowed “scaling at a level we couldn’t achieve alone.” And to older founders who may be nearing retirement, a private equity buyer may become an appealing option. ¹² ¹³

If manufacturers are feeling squeezed, private equity appears ready to jump in. PE activity in 2025 hinted at a renewed interest in the sector with nearly 900 deals and investing billions in the U.S. with valuations in some cases topping 11x EBITDA. Money to spend and businesses to buy. What felt like a labor problem to founders struggling to hire can turn into a bonus for buyers looking to acquire a trained workforce to expand existing operations. And where smaller owners lacked the funds to fully automate and modernize, PE investors provide resources. ¹⁴

Investors, the buyers, will conduct due diligence before cementing an offer for a manufacturing business. The need for investment in modernizing and automating isn’t the deal breaker if the buyer already knows the operation is looking for investment. But other red flags can break a deal, things such as poor safety records, poor financial performance, customer concentration, and even management issues such as overreliance on a “key man,” a founder who is essential to the continued operations. Investors are interested, but they are seeking truly good companies that could be better with some investment. ¹² ¹⁵

For sellers, the private equity option is looking good. Global consultants at McKinsey & Company reported in 1H26 PE firms have rarely offered valuations this enticing, averaging recently 11x or more. But achieving a premium valuation in an environment where interest rates remain high requires work. Sellers need to demonstrate strong and growing financial performance, stable margins, and defensibility in their product offering to achieve a top of market valuation. ¹⁶

• Beehive Industries, a startup manufacturer of advanced propulsion systems for unmanned aerial defense customers, in early July announced the acquisition of two machine shops, Cincinnati-based Able Tool Corp. and its subsidiary, Planet Products Corp. A Beehive company official called it “a move for scale” that will boost manufacturing capacity for its developmental Frenzy 8 engine with production-ready capabilities. “Our customers need engines now” the official said. The acquisition, he said, provides Beehive with ready-to-go machining capacity and an experienced, trained workforce. Able Tool co-owner Paul Hayes said his company has spent decades developing its business, but joining Beehive provides the infusion of cash needed to scale at a level the company couldn’t achieve alone. In April, the Air Force awarded Beehive a nearly $30 million contract for its turbines, providing up to 300 pounds of thrust for disposable “swarm-class” drone munitions designed to overwhelm enemy defenses through sheer numbers. ¹³ ¹⁷ ¹⁸

• Anyone active in the manufacturing space may want to keep an eye on the drone sector, as interest in their use is on the rise after years of military applications in Ukraine and the Middle East, sparking what one report called a “tech-driven arms race.” In March, startup Shield AI announced a new $2 billion round of fundraising for its AI-enabled autonomous military vehicles. Civilian applications, too, are on the rise everywhere from home inspections to alternatives to fireworks displays. ¹⁹ ²⁰
  
  
• In April, Pennsylvania based private equity firm Graham Partners acquired Midwest Products & Engineering (MPE), a contract designer, developer, and manufacturer of electromechanical and robot-assisted surgical systems headquartered in Milwaukee. MPE had been in the portfolio of the Chicago private equity firm BPOC. Under BPOC, MPE evolved and grew from a custom cart manufacturer to a designer and maker of complex medical devices that enable surgeons to provide less-invasive, precise care involving real-time, 3D surgical tools. ²¹
  
  
• Also in April, Horsburgh & Scott, a portfolio company of GenNx360 Capital Partners, acquired Texas-based Franklin Machine & Gear in a rollup that expands on Horsburgh & Scott’s industrial gearing platform, extending its footprint in the Gulf Coast area. Founded in 1974, Franklin offers turning, milling, gearbox rebuilds, and gear grinding among other services in maintenance, repair, and operations (MRO). It serves a broad set of industrial markets and has grown to become a strong regional player. The move is seen as a positive addition to Horsburgh & Scott’s existing business, built around custom engineered industrial gears for industries including steel, mining, and energy. Through the acquisition, analysts expect Franklin to enjoy greater financial resources and an improved competitive position in the region. ²² ²³

While individual manufacturers are facing labor headwinds that may feel like obstacles, it’s important to remember this is a sector-wide issue. And while capex demands to modernize and automate may feel like impediments for smaller owners, the deep pockets in private equity and larger players looking to bolt on growth or roll up regional operations may see necessary investment as an opportunity, not an impediment.

We believe the time for sellers to prepare is now, not when the founder decides it’s time to exit. If investors are prepared to offer a premium valuation and investments in modernization, they will want to see a clear upside. Documented stable and growing financial performance is a must. Demonstrated resiliency through soft economic conditions and customer and end market diversification are keys. And a stable workforce that has benefited from ongoing training – even a partnership with a local community college or vocational program – can indicate a commitment to growth and the capacity to adapt if a buyer invests in expansion. ²⁴

From many angles, it appears the manufacturing sector is poised to surge. Federal policies, tax advantages, and demand for aerospace and defense, transportation, and computer components, along with a wave of reshoring initiatives, are pushing the sector forward. And the money is out there. Private equity is recognizing the potential and making the investments that matter. ²⁵ ²⁶

Ideally, owners in the manufacturing sector should start preparing for an exit 24, or even 36, months prior to a sale. If there’s an opportunity to grow the workforce younger and address continuity concerns among your aging skilled labor force, seize it. And focus on the fundamentals, diversifying your customer base, eliminating supply chain chokepoints, and investing in automation where you can. For businesses that can address these foundational elements, the manufacturing M&A market is bright.

Right now, these are the most active buyers we are seeing in the manufacturing industry.

Additional highlights in the manufacturing industry.

Year over year data

Recent lower to middle market transactions by SDR Ventures in the manufacturing sector, including:

From wood pallets to medical devices, we have been providing M&A services to the Manufacturing Industry since our inception in 2002. Since then, we have helped complete multiple transactions ranging from industrial mergers and acquisitions to private capital sourcing for growing industrial businesses.

We serve all types of companies across the Manufacturing Industry, but have particular expertise in:

• Building Products
• Electrical Equipment
• Industrial Supplies and Parts
• Machinery (B2B)
• Business Equipment and Supplies
• Home Goods