The early stages of the COVID-19 pandemic and a supply chain crisis brought M&A manufacturing to a near-standstill. But now, manufacturers are back up and running, and many are looking to M&A as a way to grow their businesses, exit into retirement, and earn a tidy profit. But manufacturing M&A isn’t just for thriving businesses. If your manufacturing company is struggling, M&A might be a way out. Here’s what you need to know.
M&A as an Exit Plan for Struggling Businesses
If you’re wondering how you can use M&A to your advantage when you exit, there are a few options. They include:
- Selling your company outright, often at a fraction of its potential value.
- Buying another company to supplement your offerings and help your business recover.
- Selling off a struggling portion of your company so you can focus on more profitable elements.
- Liquidating assets and selling them.
Is Now the Right Time?
If you’re contemplating a sale, now is actually always going to be the lowest risk time to sell. Why? Because you know where you stand right now. Moreover, interest rates are likely to increase and multiples may decrease, making your business less sellable in the future than it is right now. Even if you increase value, if your multiple plummets, the real-world meaning of that value will, too. So if you know you want to leave your company, the time to make your exit is now. Working with an M&A advisor to help plan your exit can help you extract the most value, even when your company is struggling.
Exhausting Other Options
If you’re leaving solely because your company is struggling, it’s important to consider exhausting all other options first. Can you bring in new management? Raise capital? Invest more time and energy into the company?
Buyers are inherently risk averse, especially in the wake of COVID. They don’t want to buy a struggling company, especially not for a premium price. And if they hear you’re walking away because you don’t know what else to do, this is a major deterrent. So before oyu put your company on the market, you must be absolutely certain this plan is best for you.
Get a Valuation
When you prepare to walk away, work with a valuation expert. Knowing the actual value of your company can help prevent unpleasant surprises, and may even help you generate additional value if you have a little time. Some owners of struggling businesses skip this step, but that’s a decision that is to their detriment. Knowledge is always power, even when the information isn’t exactly as positive as you would like.
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