Shifting Economic Landscape Reshapes Precision Manufacturing Industry
Capstone latest Precision Manufacturing Industry Update reports that industrial expansion has remained at the forefront of the Precision Manufacturing industry and is expected to support future merger and acquisition (M&A) activity as industrial technology advances. Demand for precision-engineered products has continued to grow, driven by innovation in sectors such as Aerospace, Data Centers, and Medical Devices.
Persistent macroeconomic uncertainty has continued to weigh heavily on the Precision Manufacturing industry, particularly among original equipment manufacturers (OEMs) that rely on stable demand cycles to justify new product launches and capital investments. Inflation, breadth of interest rate cuts, and geopolitical instability have clouded sector outlook, and many OEMs have delayed or scaled back technology frameworks. This has resulted in reduced order volumes and longer sales cycles for component and tooling suppliers. Caution among players has been reflected in constrained capital spending trends, where manufacturers have increasingly prioritized cost containment and operational efficiency over expansion, unless their offerings are directly tied to high-growth verticals. Capital expenditures in the Manufacturing space have remained flat in 2025, with actual capacity utilization falling to just 53%, well below the projected 63%, according to a Wipfli survey.1
One clear exception to this trend is the Data Center market, which has remained a bright spot amid broader softness. Demand for artificial intelligence (AI) infrastructure, machine learning (ML), cloud computing, and high-performance electronics has driven sustained investment in thermal management solutions, enclosures, and precision components tailored to these applications. Manufacturers with exposure to data center buildouts have seen continued momentum, often outperforming peers in more cyclical or consumer-facing segments. Annualized spending on new data center construction for AI workloads reached a record $31.5 billion in 2024, according to a Newmark report.2 This burgeoning source of demand drove the development pipeline to nearly 50 million square feet at the end of 2024, approximately double the volume from five years ago. Mayville Engineering’s (NYSE:MEC) $140.5 million acquisition of Accu-Fab in May 2025 has underscored this dynamic. Accu-Fab’s precision sheet metal capabilities and customer relationships align with Mayville’s strategy to diversify beyond traditional Industrial markets and tap into resilient demand streams. The deal reflects a broader shift in M&A strategy, where buyers have increasingly targeted niche manufacturers with exposure to durable, technology-driven sectors that offer insulation from macroeconomic volatility. This environment has also influenced how manufacturers evaluate cross-border transactions and material sourcing strategies as regulatory uncertainty evolves.
Liberation Day has taken on new meaning in the context of global trade tensions. For the Precision Manufacturing sector, tariffs have introduced a complex set of challenges and opportunities across the value chain. Upstream suppliers of raw materials, particularly metals, have faced steep import duties, driving up costs and squeezing margins. Midstream fabricators and component manufacturers have been caught between absorbing price hikes and maintaining competitiveness. Concurrently, downstream OEMs have increasingly reevaluated sourcing strategies, with some turning to reshoring or alternative materials to mitigate tariff exposure.
After years of lean inventory strategies driven by just-in-time (JIT) logistics and supply chain optimization, businesses have reconsidered their stocking philosophies. Pandemic-era disruptions and ongoing geopolitical instability have triggered a restocking cycle, with many firms opting for higher inventory buffers to hedge against future volatility. While not all sectors have returned to pre-2020 stocking levels, there has been a noticeable shift toward more resilient inventory models. In the Precision Manufacturing sector, this has led to greater demand visibility for suppliers and a potential uptick in domestic production, as companies seek to reduce their strategic reliance on foreign inputs.
Also included in this report:
Why tariff-induced material substitution has fueled plastics adoption in the Precision Manufacturing industry.
A breakdown of what type of buyers are targeting precision manufacturers, contributing to sustained M&A and equity capital markets activity in 2025.
How data analytics have improved operational efficiency, identify opportunities for cost savings, and optimize business value, with a case study from Capstone’s Financial Advisory Services (FAS) Group.
Capstone Partners’ Industrials Investment Banking Team provides M&A, capital formation, and financial advisory services to the owners of middle market businesses in the Precision Manufacturing Industry. Our team partners with leading mid-to-large sized businesses that serve growing end-markets.
For more information on the Precision Manufacturing Industry trends featured in this report or to speak with one of our Industrial M&A Team members about how to grow, value, and/or sell your company, we are here to help. Contact us today.
