How COVID-19 Has Driven a Boom in Manufacturing M&A

While many sectors have lagged during the global COVID-19 pandemic, small and medium-sized manufacturers have made big gains—and may continue to do so. Some owners have even been met with unsolicited offers from buyers. Owners considering a sale—planned or not—must make a number of considerations. It’s critically important to understand what’s driving this increase before you move forward.

Why the Increase in Manufacturing M&A?

Banks view transactions with manufacturers favorable because they usually involve valuable inventory and equipment, making loan underwriting easier. Strong manufacturing companies also have excellent cash flow, and typically qualify for valuable tax incentives.

It’s primarily small to mid-sized manufacturers, especially in the Midwest, seeing an increase in M&A. This is thanks in large part of the ease of transitioning revenue streams.

COVID-19’s Effect on Manufacturing M&A

The current M&A trend stems from a variety of circumstances, including COVID fallout. The pandemic strained supply chains to the breaking point, and raw materials became increasingly scarce. There was a dual effect. Some companies were decimated and pushed out of the market. But manufacturers who were not shut down by COVID gained new customers and a strong competitive edge.

Buyers gained access to valuable acquisitions and more synergies to manage supply problems. The Federal Reserve has announced it intends to keep interest rates low through 2022. This cheap lending will spur another round of M&A through the end of 2022.

Key Seller Considerations

Manufacturers considering a sale or evaluating a purchase offer must evaluate whether selling now is right for them. Some strategies to make the most of every deal include:

  • Bring trusted advisors, including an M&A expert, an accountant, and an attorney, into the process early. They can help you asses the offer as it fits into your long-term and strategic goals.
  • Know how much your business is worth. Don’t guess or fantasize. You need a credible expert valuation to help you assess any offers and structure the sale to be as fair and lucrative as possible.
  • Get your financials in order. Get personal expenses off the books. Make sure you have at least three years of financial statements that show strong earnings and, ideally, increasing profits. Buyers will not just take your word about profitability. You need to support every claim you make with strong financial statements.
  • Minimize risk to the buyer. Buyers don’t want to take on a company with serious liabilities, uncertain futures, or a negative reputation. Do whatever you can to minimize risk to the buyer. Critically, this includes being upfront about any liabilities, since doing so fosters more good will and trust between seller and buyer.
  • Nurture a competitive bidding process. More offers equal a higher final sale price. Sellers should not accept the first offer that comes their way.

Posted on

October 6, 2021