Manufacturing M&A Landscape
The manufacturing industry includes a broad range of subsectors, including aerospace, food, automotive, heavy equipment, and more. Banks have traditionally extended significant credit to the manufacturing sector because they have tangible assets that provide significant collateral. This mitigates the worst-case scenario, giving the bank a valuable asset to seize.
But traditional risk management approaches often fail to look at the intangible value in asset-heavy companies. Unlocking these hidden value drivers is critical to the success of M&A.
Prior to the COVID-19 pandemic, North American manufacturers were part of an M&A bonanza. The pandemic has brought that to a screeching halt, thanks to uncertainty about the future of the pandemic and the political landscape.
Many would-be sellers have seen declines in value, inspiring them to postpone the sale in the hopes that market conditions might improve. Those with the most profitable operations and strongest balance sheets have enjoyed larger market shares as less successful industry peers struggle to adapt.
This phenomenon happens with just about every economic downturn. It’s a predictable cycle. And while we don’t know when it will end, we do know it will end.
If your company is considering M&A—either now or in the future—you should know that buyers are showing signs of re-emerging confidence. M&A was already improving in the second half of 2020, and we anticipate that trend will continue. But several factors continue to weigh on the industry. They include:
- Buyers continue to exploit the situation, seeking the lowest possible sale prices by going for distressed companies for sale at bargain basement prices.
- Deals that were once delayed by COVID are now moving toward closing.
- Companies are pursuing inorganic growth as a way to thrive in a low-organic growth environment.
- Business owners are facing mounting fatigue as they deal with the challenges of COVID.
- Sellers who left the market are now seeking to re-engage with buyers.
- A backlog of postponed transactions may help fuel activity through the first half of 2021.
- Deal pipelines are again growing.
Manufacturing businesses must understand the role the pandemic may play in their bottom line, as well as how the new M&A bonanza may serve as a tool for growth. As always, expert insight from an M&A advisor can help you better position your company for whatever comes next. Don’t lose money by going it alone.