How to Make M&A Part of Your Manufacturing Growth Strategy

by marketri_admin | Aug 6, 2021

Mergers and acquisitions are an excellent strategy for companies seeking to penetrate new markets, become more competitive, or instantly access new technologies. Particularly in manufacturing, M&A offers significant value, and the post-COVID M&A bonanza is currently booming. But not all M&A deliver the promised return on the investment. Indeed, M&A can be a significant waste of money if you’re not strategic about your goals. M&A only works as a growth strategy if you choose deal partners who are well-positioned to support meaningful growth. Here are five scenarios in which that can happen.

Rapidly acquiring talent and IP

Some sectors in manufacturing are suffering from an acute shortage of labor. Factor in the value of quality intellectual property, and you can see how a merger could quickly accelerate growth in your company. The acquisition of a well-trained team is incredibly valuable—especially if they bring with them valuable IP and the knowledge of how to use it.

M&A fills gaps in client lists or services

Sudden changes in the marketplace—witness COVID-19—can create sudden gaps in a firm’s services and client base. These gaps leave space for a valuable merger. Consider, for example, how post-9/11 regulations required the defense industry to adapt with new skills. Emerging technologies also inspired a manufacturing boom, for companies that were prepared. Companies that had the right experience and clients became infinitely more valuable, even as everyone else floundered.

Building new synergies

Synergies for both companies can offer value to each, if you think carefully about M&A as a growth strategy. There are two approaches here: revenues and costs. Cost synergies help reduce expenses by capitalizing on and consolidating resources. Revenue synergies shift the competitive balance of power by changing market dynamics, raising prices, or selling new products. If a merger offers the opportunity to penetrate new markets, close some plants, reduce competition, or expand your customer base, it may have synergistic value.

Make better use of time

Time is a finite resource, and arguably the most valuable resource we have; you can’t earn more of it. The right merger can help you save significant time. Consider a firm that’s weighing adding a new service or product to its offerings. Adding this organically can take months or even years. It demands significant resources, possibly bureaucratic red tape, and a lot of ingenuity. But adding someone else’s successful products and services to your existing approach requires only that you go through the process of M&A. Your investment comes pre-tested, allowing you to continue growing your core business.

Adding a new business model

Manufacturing companies run the gamut in terms of business model. If you can add a new, proven revenue-generating model to your existing approach, that offers additional security and revenue. It’s a lot easier to incorporate someone else’s tried and true method than it is to develop your own, and this is where mergers offer exceptional value.

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

by marketri_admin | Jul 7, 2021

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.

Post-Merger Integration Strategies for Your Manufacturing Business

by marketri_admin | Jul 7, 2021

Manufacturing companies are increasingly leading with their integration strategy as they begin the M&A process. The reason for this is simple, and important: integration failures are common, and if you wait until the merger to plan for integration, integration very well may fail. While there are many different ways to integrate, building a holding company and fully integrating an acquisition are the two different extremes. Let’s explore each.

Building a Holding Company

The holding company model relies on using management to improve companies that already have good brands or products. The goal is not to gain value via cost synergies or revenues. Instead, the acquired business continues to operate autonomously. Holding companies can help parent businesses hedge against market conditions over time.

Full Integration

With a full integration, one company gradually sheds its identity as the companies merge into a single entity. This can save money on software and hardware, while streamlining business activities. While every acquisition should be focused on the deal thesis, the most successful deals are closely fixated on the factors that improve deal success, including:

• Management: An exceptional management team can ensure you hit key benchmarks, while adding value to the deal. Just make sure you have managers from both sides of the deal who are prepared to embrace the new culture of the shared entity.
• Financial: Set clear benchmarks for growth, margins, working capital, and ROI.
• People: People make your business. So treat your key people well, and incentivize them to remain on after the deal closes.
• Revenue growth: You must identify your plan for increasing market share and pricing power, pushing products through existing and new distribution channels, and investing in innovation.
• Renegotiation: You may need to renegotiate terms with customers and suppliers to improve your cash conversion cycle.

These two distinct integration strategies can each generate immense value. But it’s important to clearly identify goals at the outset of the deal, so you can assess which strategy is likely to work best and devise a plan for pushing forward with that strategy.

Key Manufacturing M&A Trends

by marketri_admin | Mar 31, 2021

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.