At NuVescor, we align the interests of investors and business owners to enable the personal and financial goals of our clients. For over a decade, we have helped founders and owners of companies in the manufacturing sectors achieve maximum value for their companies. Together, we can provide business valuations, financial analysis, investment guidance, and business transaction advice for middle-market companies with revenues from $5 million to $500 million.

In this post, we’d like to share with you 4 case studies that illustrate the impact that COVID-19 had on certain businesses and provide an update on trends we are currently seeing. 

Case Study #1 – Significant COVID Impact

• Automation business: 80% concentration to one customer, 90% of sales are in automotive industry
• Sales rebounded nicely, but backlog suffered
  • Backlog at launch: $12,000,000+
  • Backlog at close: $4,600,000
• Changes in business = changes in deal
  • Value held up
  • $1.85M in seller financing switched to an earnout

Case Study #2 – Significant COVID Impact

• Coating and equipment business, serving automotive and aerospace customers
• Sales negatively impacted, with no rebound yet
• Changes in business = changes in deal
  • Bank decides they are going to lend $1,300,000 less than their commitment letter
  • Total value reduced $500,000
  • Seller financing increased $800,000
  • Buyer tapped out on down-payment

Case Study #3 – NO Significant COVID Impact

• Styrofoam pattern company serving industrial casting and tooling customers
• No real sales dip due to COVID (aside from February)
• No change to valuation or deal structure from LOI

Case Study #4 – NO Significant COVID Impact

• Snack food manufacturer that manufactures for other brands
• Sales actually increased throughout COVID (people gotta eat, right?)
• No significant change to valuation or deal structure from LOI, even under the scrutiny of private equity quality of earnings pressure

What We’re Seeing in the Market

• Sellers are still selling, buyers are still buying, banks are still lending
  • 1 closing in February, 1 in May, 2 in June, 1 in August, 1 in September, 1 in October
• There are still real outliers to the high side, but fit/motivation must be perfect
  • Recently signed LOI for Manufacturing Business with less than $10 Million in sales – 4 LOIs submitted @ 5x multiple and signed LOI at 7.5x multiple all-cash stock sale
• That pesky PPP loan uncertainty: be ready to escrow funds as part of the closing proceeds
  • But remember – the seller stays in control!
• Watch out for scams/wire fraud!
  • Lost one, caught one

2020 has been a year of twists and turns, and has not followed any analyst’s predictions. The M&A world has attempted to weather the storm, in spite of deal volume and deal value declines. IBBA’s Market Pulse Report indicates that manufacturing companies remain among the most valuable deals. More than anything else, COVID has triggered major delays to in-process deals. Many lenders have changed their loan structure to become more conservative. As we adjust to the new normal, deals should pick up. Here are some highlights from relevant sectors in manufacturing from the first half of the year:

• Plastics M&A: Plastic injection molding should grow thanks to the ever shifting needs in healthcare and the demand for eco-friendly packaging. Deals continue to thrive internationally. For example, Technimark acquired Tool & Plastic Industries Ltd. In Ireland. With multiple global locations already, the new acquisition will increase Technimark’s European footprint. In the U.S., Revere Plastics continues to expand by acquiring many plants from Techniplas, a Wisconsin-based company.
• Gear Manufacturing: In Germany there was some gear manufacturing consolidation, with the continued closure of international deals. Scherer Feinbau was recently acquired by EMAG, a global business offering an array of machining solutions across many nations. ACEDIA group, a German holding company, acquired Pennsylvania-based ASI drives, building a stronger portfolio of gearbox and gear drive companies to better support the automotive industry.
• Tool and Die M&A: In the tooling industry, Production Tool & Supply is being acquired by DGI Supply. DGI Supply’s parent company includes manufacturers of grinding and sawing products. This acquisition marks the newest addition to more than two dozen DGI Supply locations across the United States and North America.

About NuVescor Mergers & Acquisitions
At NuVescor, we align the interests of investors and business owners to enable the personal and financial goals of our clients. For over a decade, we have helped founders and owners of companies in the manufacturing sectors achieve maximum value for their companies. Together, we can provide business valuations, financial analysis, investment guidance, and business transaction advice for middle-market companies with revenues from $5 million to $500 million.

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.