Manufacturing M&A in 2021 and Beyond: Predictions and Insights

The COVID-19 recovery is already in full swing. And while many manufacturing businesses struggled to stay afloat in the wake of the crisis, many also seized the opportunity. Deal cycles are faster, with many companies purchasing low performers as an affordable growth vehicle. So what do we anticipate seeing in the next 2 or so years? Here’s what manufacturing M&A trends are already revealing.

The Aftermath of COVID-19

While all sectors saw some disruption thanks to the pandemic, manufacturing suffered immensely, with a 63% decline in deal value and a 36% drop in deal volume between Q1 and Q2 of 2020. Transformational deals became less prevalent, with a greater focus on small deals. Special purpose acquisition companies (SPAC) also became bigger players, leading to an influx of PE investment in technology and digital portfolio companies that support manufacturers.

We’ll likely continue to see pandemic-related disruptions. This means a greater focus on regional businesses to help cultivate partnerships and drive revenues. As growth becomes the focus, technology will become more important yet again.

Another interesting trend is that, though the pandemic itself slowed deals, the craving for speed has increased. We witnessed a decline in speed to close from 130 to 60 days during the 2008 Great Recession. A similar trend may persist into the future.

The Deals That Will Dominate the Next Two Years

Greater access to capital and ongoing interest in innovation will drive the initial rebound. Manufacturers will then focus on optimizing operations. Some sectors are well positioned, especially in the middle market. Manufacturing companies will be eager to divest of non-core and low-performing aspects of their business, then use that money to invest in something more valuable—especially digital technologies.

What Companies Need to Do to Succeed in the Post-COVID World

The tactics necessary to survive in the post-COVID world aren’t that different from those that successful companies embraced prior to the pandemic:

  • Plan early so that you have time to get your business in order.
  • Bring in the right advisors to prepare you for the deal and to help manage integration.
  • Be mindful of digital opportunities during a sale.
  • Know the workforce implications of a sale, and work hard to keep your key team members on board and happy.
  • Focus on the needs of the business when building the integration model. You need a clear plan, with identifiable goals and success benchmarks.
  • Build a flexible architecture for data and operations. This can help you build a standardized integration model that saves time.
  • Plan for integration well before closing, and devise a communications plan that gets ahead of the rumor mill and clearly and succinctly explains the merger to key stakeholders.
  • Get a spectacular management team in place now, then do whatever is necessary to keep them on board.

Posted on

July 7, 2021