Want to Improve M&A Deal Value? Focus on Optimizing Manufacturing

Want to Improve M&A Deal Value? Focus on Optimizing Manufacturing

Boosting manufacturing performance is one of the quickest ways to grow margins and release cash. Changing the structure and capabilities of your manufacturing supply chain via M&A offers significant value generation opportunities, but also requires a large upfront investment. Manufacturing typically contributes 30 to 50% of costs in a deal, so it’s important for both manufacturing and non-manufacturing companies to work to optimize manufacturing as early as possible.

Boost Productivity and Performance

Improving manufacturing performance increases gross margins and releases cash, offering far greater value than the short-term value generation of most transactions. Improvements must be sustainable, and rely on clear data—including real-time data.

Prioritize Business Continuity

The new entity must comply with all legal and regulatory requirements. Maintain consistent customer service by getting plant certification and other regulatory requirements in place as early as possible. Your transition plan should include transition service agreements and inventory building strategies to ensure supply chain continuity and minimize—or eliminate—customer service delays. Mergers can be disruptive; it’s your job to minimize disruption to your customers, and to ensure that the merger ultimately provides additional value.

Focus on Network Design Streamlining

Companies often cite plant rationalization as a key value driver. Companies can reduced fixed cost by an average of at least 25% thanks to network optimization. To define an optimal manufacturing network, companies must conduct a comprehensive review that focuses on proximity to suppliers and customers, then evaluates network options within the available constraints.

You must be willing to undertake a comprehensive review of your current operating practices, strategy, and critical expertise, as well as how they align with the deal’s goals.

Efficiently Manage Changes to Manufacturing Sites

Sometimes you need to close, integrate, or radically change manufacturing sites. Without a careful execution plan, doing so can disrupt operations and cause you to lose business. You can increase efficiency by moving products and equipment around before closing facilities. Executives need a keen understanding of product processes and capabilities, current and potential volumes, costs, labor, operational factors, and product mix. Identify the constraints within which you are working, then work early to develop a plan to minimize disruptions and reorganize plants in an orderly fashion.

Integrate Your Operating Model

Executives will need to reconfigure their operating models to become more integrated and collaborative. Operating considerations should begin at the corporate level, focusing on the degree of centralization, the extent of integration, and who fills which roles. There will be trade offs that may affect service and product quality. Be prepared to justify these trade offs, and ensure wherever possible you’re working to create more value and a better customer experience.

Post-Integration Manufacturing M&A Planning: Getting the Most from the Deal

Post-Integration Manufacturing M&A Planning: Getting the Most from the Deal

The world of manufacturing investment banking tends to focus on everything that comes before the deal: regulatory snafus, final sale price, and the challenges of inertia. But for most companies, success comes later. Post-merger integration is critical to the success of your business. Without ample planning, the deal may not realize its promised value, wasting time, effort, and talent. These five strategies can help you ensure that, when the deal closes, 1+1 doesn’t equal something less than 2.

Identify and Understand Value Drivers

All value creation opportunities should be explicitly stated early, with a plan for realizing success via each driver. It’s not enough to simply point to potential sources of value. You must have reliable metrics for determining how much these value drivers are worth, and how your business intends to drive that value higher. Particularly in the era of COVID and beyond, it becomes increasingly important to focus on contingency plans and adaptability to unforeseen crises.

Know the Importance of Governance Structure

Stark cultural and operational differences between two companies necessitate a new governance structure that helps expedite integration and reduce the risk of value dilution. Rather than merely creating functional teams, try defining value creation groups. A cross-functional approach here is key. This allows you to focus your attention on solutions for multiple functions. You must identify and begin assembling your governance structure early in the process, rather than turning governance into a mere afterthought.

Make a Diligence “Clean Room”

During the due diligence phase before closing, access to and availability of data can have lasting effects on the transaction. With too many delays, the deal may lose momentum. And if you cannot produce the data a buyer needs, they may begin to lose interest in the deal. A “clean room” can help you expedite the process. A clean room mans you rely on a third party vendor or specific individuals without conflicts of interest to share data between the parties. A clean room not only accelerates due diligence, but can also help with assessing future synergies and cost savings—a key consideration for integration planning.

Design a Detailed Operating Model for the Value Chain

You must have a deep and complete understanding of each company’s current people, systems, processes, and assets. This is the foundation upon which you will build the new entity, drawing upon the respective strengths of each prior entity. The future operating model depends on the type of deal and its goals. A small tuck-in may not require dramatic changes. A transformative deal, by contrast, presents the opportunity to implement sweeping reforms that increase value.

Focus on Culture

It’s the hidden aspect of every deal, and the one that’s most likely to send the deal awry: culture. Changes in corporate demographics, management style, requirements, benefits, and more can be real challenges for your workforce—who will in turn create serious challenges for you. The hidden, unstated aspects of the deal—who holds the power, who makes decisions, how employees are treated—are often the most important. So be explicit about differences, and find ways to bridge these gaps.

Key Manufacturing M&A Trends

Key Manufacturing M&A Trends

U.S. manufacturing has dipped to its lowest level in more than 10 years. Yet the M&A market remains active, with promising signs for future improvements. Interest rates are historically low, and investors are flush with cash. Savvy investors are investing now in this growing sector, and reaping the rewards of doing so. Whether you’re a buyer, a seller, or an interested observer, understanding the most important trends in this industry can help you grasp the rapid changes it is currently undergoing.

Robots Everywhere

Low unemployment means a tight labor market, and manufacturers are relying on robots to keep up with demand. Where skilled manufacturing jobs are abundant, businesses continue to struggle to find the right employees. Raising starting pay can only go so far. To manage this shortage, companies are relying on robots who can work longer and harder, and who are not susceptible to the same injuries and other risks humans are.

Productivity Growth

Automation, like the robot trend, is driving increases in productivity that may render some jobs obsolete. PE firms are increasingly investing in companies that can boost productivity and help portfolio companies to become more efficient.

Cost Cutting Measures

While many companies are investing in expensive new technologies to reduce costs over time, the overall trend is toward reducing costs. Labor costs have risen 15 to 20 percent, making new technology seem more appealing—and more affordable. Larger companies are increasingly prioritizing their core competencies, and looking to get rid of secondary assets.

Bigger and Bigger

Manufacturing is a challenge industry. Retaining customers and recruiting new ones can be exhausting. Consequently,  many companies are growing their product offerings by merging with companies that offer valuable synergies. Mergers and acquisitions offer a faster path to attracting new customers and better capitalizing on investments.

A Focus on Infrastructure

Knowledge about our nation’s crumbling infrastructure is now widespread—and a widespread source of concern. Companies that focus on basic infrastructure, like bridges and tunnels, stand to gain big. We may also see robots and other forms of automation figuring prominently in the push to rebuild national infrastructure.

Real-Time Data

Real-time data is increasingly important across industries. It opens new opportunities, and can help you better identify and meet your customers’ needs. Equipment manufacturers can use this data to offer important insights into equipment performance and maintenance needs, offering better service and a longer product life.

Smart Warehouses

Honeywell’s acquisition of Harsum in 2019 gave them access to warehouse automation to the tune of $493 million. Businesses increasingly understand that smart warehouses can save significant cash, reduce risk to staff, and help them deliver ahead of schedule. PE firms are increasingly interested in investing in these warehouses, and in supporting their acquisitions.

Subscription-Based Sales

A subscriber is a long-time customer. To whatever extent a business is able to sign up customers for recurring fees—maintenance service, routine deliveries, or other recurring services—it can increase its bottom line, reduce risk, and better weather unexpected financial crises.

M&A and Exit Planning Considerations for Family-Owned Manufacturing Companies

M&A and Exit Planning Considerations for Family-Owned Manufacturing Companies

No matter how long you have had your business, sooner or later you’ll have to leave—whether it’s through retirement, death, or financial necessity. Planning now is the best thing you can do, rather than allowing fate to determine what happens to your company and your legacy. Let’s explore some options for family-owned manufacturing companies planning for the future of their business.

Succession Through the Next Generation

If you intend to pass the company onto the next generation, you need to identify who exactly that will be. Don’t assume that family members will be prepared to take the reins. Begin grooming someone years ahead of an exit, and be explicit wit them about your plans. Even when you do pas your business down, you’ll still likely need to sell it to the person taking control.

Selling Your Company

If you opt for a sale, you’ll need t clear buy-sell agreement, which identifies the events that trigger the agreement, how the sale will be structured, and which terms must be met before it can be completed. You need a lawyer with experience with M&A to draft this agreement—not just your in-house counsel.

Transfer Through Living Trust

Some family business owners elect to transfer through living trust. In this scenario, you transfer your company’s assets into a trust. A trustee then oversees this entity in the event of your death. This can help prevent protracted probate disputes and bad financial decisions by heirs.


If you don’t need to sell your business to retire comfortably, you might consider gifting the company to family members. It’s important to note that there can be significant tax implications, so you’ll need an accountant and a lawyer advising you before you proceed.

Succession Outside of the Family

The line of succession can be unclear in family businesses, especially if the heir you had in mind is not interested in taking over. When this happens, it’s financially savvy to look outside your family, and into the wider market, to pursue a sale.

The M&A market for manufacturing firms remains strong, and will likely accelerate into 2021-2022 and beyond. Family businesses can be an attractive asset, since they tend to be risk averse and fiscally conservative. There’s more than one way to sell your company if you consider this option. Some potential avenues include:

  • Merger of two entities; in most cases, one entity winds down and the other becomes the brand.
  • Acquisition: This happens when another entity purchases your company.
  • Management buyout: This allows existing managers to acquire the company.
  • Recapitalization: This strategy can help stabilize a company by restructuring the mix of equity and debt.

An investment banking firm can help you explore your options, identify the risks and benefits of each, then make the right decision for your family and your company.

M&A and Exit Planning Considerations for Family-Owned Manufacturing Companies

Preparing Your Manufacturing Supply Chain for M&A

Preparing Your Manufacturing
Supply Chain for M&A

Preparing your supply chain for merger-related activity can support the new company that forms. This is because the supply chain has one of the most important effects on M&A. You must be well-prepared for mergers and acquisitions to ensure companies achieve their goals. Ensuring a well-functioning supply chain is key to realizing those goals. 

What exactly is the supply chain? 

A supply chain is the network a company uses with its suppliers to enable its goods to reach the consumer. Supply chains involve a wide range of people, resources, activities, and information, each of which facilitates distribution and production. A well-designed supply chain can slash expenses. 

Why prepare for M&A?

A well-prepared supply chain team can boost earnings at a time when the new entity most needs this boost. This bolsters profitability, and can play a key role in success. You may even avoid layoffs and pay cuts. 

The goal of any M&A is to make more profit from the new entity, either by cutting expenses or generating new revenue streams. More revenue generation, however, it is generally not feasible over the short term. The near-term revenue therefore depends on cutting expenses. 

M&A failure rates are very high, partially because of the early expenses these ventures generate. Getting your supply chain ready for M&A can reduce the risk of failure, helping you save money until you begin generating more revenue. 

Strategies for M&A Preparation

As you move into M&A and begin to prepare, these tactics can help you get ready: 

  • Build a triage team that includes stakeholders from various sections. They should be prepared to quickly respond to unexpected events. 
  • Determine the size and scope of M&A, as well as how it will likely impact your company. 
  • Identify members of the larger team that will coordinate with the triage team. 
  • Maintain customer satisfaction via on-time delivery and exceptional service. You must ensure your company retains value. 
  • Build an M&A supplier database for use after the merger. It should contain key supplier data such as annual spend, location, contacts, supply agreements, and agreement termination date. 
  • Rank the suppliers so you know which is most important and which contributes the most value. 
  • Build a base of suppliers for the new entity drawing upon this list.