Manufacturing M&A stands to continue its boom in 2022, especially for companies with strong offerings and a rosy outlook that have managed the pandemic well. Understanding these key M&A trends can help you work with a business broker to successfully market and sell your manufacturing company this year.
The Current Manufacturing M&A Environment: A Primer
Manufacturing M&A is very robust right now, in spite of the interruptions other sectors of the economy have seen thanks to COVID generally and Delta and Omicron specifically. Deal flow has increased each quarter, with closings peaking in December. Current deal pipelines suggest this trend will continue at least into 2022, and possibly beyond.
In the earliest days of this boom, dealmakers were very optimistic about a return to pre-COVID business, thanks to vaccines. Low interest rates, high liquidity, and plenty of dry powder played a big role in this optimism. Even as COVID rips through the globe and optimism about vaccines wanes, PE firms remain committed to deploying capital, especially to new and established middle market companies in thriving industries. PE firms are also increasingly interested in minority investment deals, where in the past they only showed interest in buyouts. PE deals may comprise as much as 40% of all M&A activity, so catering to PE is a key strategy for successfully selling any business.
Similarly, strategic buyers are accumulating large cash stockpiles, and continue to aggressively pursue new opportunities. Lower interest rates make debt financing more accessible and attractive, enabling buyers to manage even restrictive lending standards.
The increase in SPAC activity has also increased access to public markets, and the liquidity these markets offer. Regulatory oversight has dampened SPAC enthusiasm, but SPACs will continue to play a role in many deals in 2022.
Challenges to Manufacturing M&A in the Coming Year
COVID continues to be a concern, especially with uncertainty looming about the effects of the Omicron variant. Companies that struggled during COVID may face increased uncertainty as well as additional scrutiny from buyers. Increases in the corporate and capital gains tax rates continue to pose a problem, as does inflation.
The more aggressive U.S. antitrust environment under the current administration could hinder certain deals, especially hose affecting larger companies.
Trends in M&A for the Coming Year
It remains a seller’s market, with highly competitive markets and sellers enjoying tons of leverage. PE buyers and strategic acquirers must both be aggressive to win bids. Buyers must be willing to shoulder most post-closing risks, especially in the most competitive sectors.
This doesn’t mean that every sale is a slam dunk, though. Sellers must get their books in order, prepare for due diligence, and stand ready to compete. The market is best for sellers with thriving businesses, so the more you can do to prepare your business now, the higher the ultimate sale price is likely to be.