Manufacturing M&A Rebounds
In the early weeks of the pandemic, many PE firms actually reported higher than normal deal volume. Perhaps dealmakers were trying to make it to the finish line before the economy tanked, or believed things would quickly rebound. Whatever explanation experts can devise, though, one thing is clear: the market tanked quickly after that. By the Summer, many manufacturing PE firms were seeing half of their usual deal volume. Toward the end of the year, though, firms are now reporting that things are returning to normal.
Deal experts say that those trying to sell in the manufacturing space right now fall roughly into one of four categories:
- Owners hoping to exit manufacturing before COVID permanently alters the business.
- Manufacturers who have seen a COVID-related bump in sales, and who hope to capitalize on that short-term gain.
- Companies hoping to close a deal prior to the year’s end because of concerns about tax changes under a new administration.
- The natural level of deals, including owners transitioning to retirement. This fourth category was mostly untouched by the pandemic.
Analysis from BizBuySell, which tracks national deals, transactions declined 51 percent year-to-year in April. By September, the figure was just 5 percent. Dealmakers are finding that there are ways to productively move forward. They may need to renegotiate exclusivity periods and adjust terms and conditions to offer more security to buyers. While many manufacturers will continue to experience a decline, some may come out as big winners. And there has not been a surge in sales because of COVID-related losses, which bodes well for the market as a whole.
Perhaps the most important thing for manufacturers to know is that, if they can weather the storm of COVID, it bodes well for their future. This survival may even make a business a more enticing future acquisition.
If you’re considering selling now, it’s important to seek expert input at this important crossroads. Staying in too long can definitely erode value—but if you’re panic-selling, buyers will know it, and that may produce a deal that offers less value to all parties. As with all other M&A transactions, pandemic selling is all about how well your business is doing, why you’re selling now, and what motivates the buyer to consider a purchase. If all of those factors align, it’s possible to walk away with a tidy profit.