In Summary
- The OBBB, combined with the recent interest rate cut by the Federal Reserve, is expected to ensure 2025 matches or exceeds 2024’s strong manufacturing M&A performance (which saw $92 billion in deals), benefiting sellers, buyers, and advisors.
- The bill permanently reinstates 100% bonus depreciation and creates a new 100% bonus depreciation for Qualified Production Property (QPP), providing a massive incentive for new domestic manufacturing facilities and immediate cash flow boosts.
- Enhanced tax benefits lead to a valuation uplift (evidenced by record-high EBITDA adjustments) and strengthen financing by basing the business interest expense deduction limit on the more favorable EBITDA (instead of EBIT).
- M&A activity is expected to surge in capital-intensive and innovation-focused subsectors, including Advanced Manufacturing (robotics, semiconductors), Aerospace and Defense, and Chemical and Refining, due to the asset-heavy incentives.
When the One Big Beautiful Bill (OBBB) was enacted in July 2025, businesses in many sectors celebrated the provisions that would save taxes, in part because they set the stage for increased merger and acquisition (M&A) activity. One industry sector that will benefit significantly from OBBB is manufacturing, which already has seen a recent strong advance in mergers and acquisitions, with $92 billion worth of deals in 2024 alone, and is poised to see even more M&A activity with a boost from the OBBB.
Combined with the recent quarter-point cut in the federal funds interest rate by the Federal Reserve, the OBBB may help ensure that 2025 is at least as strong as 2024 in terms of manufacturing M&A, if not stronger. That’s good news for:
- Business owners who are looking to sell,
- Buyers who are looking for good companies and solid deals, and
- The advisors they rely on to navigate a business transaction.
Improved Deal Economics
The OBBB is expected to strengthen the manufacturing M&A market in many ways, and chief among them is enhanced deal economics, thanks to these key factors:
100% Bonus Depreciation: The bill permanently reinstated 100% bonus depreciation for qualified property acquired after January 19, 2025. The Tax Cuts and Jobs Act (TCJA) of 2017 included 100% bonus depreciation, but it was scheduled to phase down and expire in 2027. In 2025, it had already phased down to 40%.
How this impacts the M&A outlook: The retroactive return to 100% bonus depreciation boosts immediate cash flow and makes asset-heavy manufacturing deals more attractive.
New Bonus Depreciation for “Qualified Production Property” (QPP): The OBBBA creates a special 100% bonus depreciation for Qualified Production Property (QPP) through 2029. QPP is broadly defined as nonresidential real property used in the manufacturing, production or refining of certain qualified products in the U.S. This is a significant expansion of bonus depreciation to include new manufacturing facilities, offering an incentive for domestic industrial development and reshoring.
How this impacts the M&A outlook: The creation of this new tax incentive for manufacturers is expected to make manufacturing companies more attractive acquisition targets.
Expanded Section 179 Expensing: Limits were raised to $2.5 million with a $4 million phaseout, encouraging capital investment and making smaller manufacturing targets more viable.
Valuation Uplift: Improved cash flow and tax benefits have led to higher EBITDA adjustments and purchase price multiples. In Q1 2025, EBITDA adjustments hit 10.88%, the highest since 2021.
How this impacts the M&A outlook: With record EBITDA adjustments and higher multiples already dominating the manufacturing landscape, the added tax incentives of the OBBB are expected to add even more fuel to deal economics.
Sec. 199a Qualified Business Income (QBI) Deduction: By making the QBI deduction permanent, the OBBB has made pass-through business entities more attractive as acquisition targets. Introduced by the Tax Cuts and Jobs Act (TCJA) of 2017, the Sec. 199a provided a tax deduction for individuals, trusts and estates with qualified business income from pass-through entities such as sole proprietorships, partnerships and S corporations. However, the deduction was set to expire at the end of 2025. The OBBB made it permanent.
How this impacts the M&A outlook: A large majority of manufacturing companies in the U.S. are organized as pass-through entities and the consistency in tax treatment for pass-throughs that the OBBB provides may assure buyers there won’t be any negative tax impacts from acquiring a manufacturer.
Impact on Finance and Leverage
Financing and leverage will also be strengthened by the OBBB, since the bill revises the limit on business interest expense deductions, basing the cap on earnings before interest, taxes, depreciation and amortization (EBITDA) rather than earnings before interest and taxes (EBIT). This is a significant benefit for capital-intensive firms in the manufacturing and distribution industry. While companies are still subject to a 30% ATI limitation, manufacturing and distribution firms will now have a larger ATI base from which to calculate the limitation.
Sector-Specific Incentives
Several manufacturing sectors will benefit from the OBBB, especially those that are capital intensive, focused on innovation or asset heavy. This may drive M&A activity to new heights. Here’s a breakdown of the sectors expected to benefit the most:
- Advanced Manufacturing: The 100% bonus depreciation and elective full depreciation for qualified production property in the OBBB make investments in high-tech facilities more attractive. Key subsectors that may benefit significantly in terms of M&A activity are semiconductors, robotics, precision tooling and additive manufacturing (3D printing).
- Aerospace and Defense: The OBBB’s expansion of federal procurement budgets and tax incentives for capital investment make this sector ripe for consolidation and infrastructure upgrades. Key subsectors to keep an eye on for increased M&A activity are aircraft components, defense systems and dual-use technologies.
- Chemical and Refining: This sector qualifies for the new 100% depreciation deduction under Section 168(n), encouraging M&A for facilities built or upgraded between 2025 and 2029. Key subsectors that may see increased M&A activity include petrochemicals, specialty chemicals and industrial solvents.
- Agricultural Production: The bill includes incentives for production property used in agriculture, supporting vertical integration and tech-driven farming operations. Key subsectors to watch for increased M&A activity are food processing, fertilizer manufacturing and agri-tech equipment.
- R&D-Heavy Manufacturers: Restored domestic research expensing and flexible amortization options reduce phantom income and improve deal economics. Key subsectors to watch for increased M&A activity include medical devices, biotech manufacturing and cleanroom technologies.
Summary
The OBBB is expected to fuel M&A activity in the manufacturing sector by improving deal economics, lowering finance costs and incentivizing capital investment. If you would like to discuss M&A opportunities for your manufacturing company, contact Laura Berry or Nicole Suk.
