Owners of manufacturing companies who are planning an exit must consider a range of factors during the current unprecedented challenges. While some are delaying an exit altogether, others are anticipating last-minute term changes from buyers. Here are a couple of potential scenarios.

Considering an Exit
Business owners considering an exit must reassess their plans, and weigh whether the crisis will increase or decrease access to qualified buyers. Many PE firms have announced their plan to ramp up investing during the crisis, but it’s because they hope to find devalued companies. You may need more time to negotiate your exit, and you may find significant differences of opinion when it comes to valuation.

We are seeing strategic buyers in plastics and metals manufacturing willing to value companies based on Post-COVID financials because they need capacity and they need it now.

Negotiating a Sale
Stay-at-home orders have stalled many sales, and slowed the negotiation process to a crawl. No one knows what to expect. When will the virus end? When it does, will people’s consumption habits fundamentally change? Will suppliers survive? Who will be left?

Buyers are going to use the pandemic to drive down prices and get a good deal. When deals are in progress, buyers and sellers may debate whether the business is worth the original agreed-to price. This will vary from industry to industry. In some niches, company values may actually increase thanks to the loss of competition or an increase in demand for certain technologies. Even in areas where stay at home owners are no longer in place, businesses have had to make difficult decisions about whether to reopen, how to safely do so, and whether to open at full capacity. No matter where a business comes down on these issues, there is political blowback—whether from very cautious customers or from those who refuse to take any precautions at all. All of this can affect brand, the course of normal business, and the ability to continue increasing revenues.

Sellers must consider whether buyers are still able to make strong offers. The demand for seller financing will increase. Many buyers will low ball companies because they hope that sellers are eager to sell and leave the stress of business ownership behind. Desperation is the seller’s worst enemy here. If you can’t get the price you want now and you have reason to believe the business will bounce back, waiting for the dust to settle may be the most viable option.

However, this may be the time to get the best price you are going to see for some time. The bottom line is if you are even thinking about selling you need to get help understanding how buyers in today’s market are valuing your company.

Receiving Buy-Outs
People currently receiving buyouts may find that COVID affects their stream of income. There may be layoffs, salary deductions, and other strategies to reduce payroll. Companies may then look to former owners to further slash expenses, including by requesting lower or delayed payments. There may be more disputes over earnouts, especially since meeting earnout benchmarks is extremely unlikely during an economic crisis.

No matter what your exit plan is, having the right advisory team can help you make good decisions. There may be options you’re not aware of. Moreover, identifying certain weaknesses early in the process can help you better position your business for a lucrative sale. So work with an M&A expert to get the most from your exit, regardless of where you are in the planning process.

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.

Industrial companies know too well the value of cutting-edge tech, even as many find that it can be challenging to organically build the capabilities they need fast enough to compete. Mergers & Acquisitions (M&A) offers a shortcut. Rather than competing, industrial companies look beyond their own operations and acquire competitors and small companies who can advance their capabilities. Despite this, many companies fail to realize the value they hoped for from their mergers. Industrial companies must rethink the deal process so they can truly maximize value. 

The New Digital Deal
Digital growth is now a key motive for M&A. Acquiring new technology is now an equally important motivator as compared to traditional triggers. As many as 86 percent of companies have acquired or contemplating acquiring a digital business to gain access to new technology. 

Despite this, many companies leave their digital acquisitions as standalone businesses after closing. Integrating diverse cultures and skills can be challenging, but it is critical to digital acquisitions. Successful companies merge the two businesses, bringing together the best of each. 

Out With the Old 
In addition to accelerating M&A, technology is retooling the entire process. Companies that succeed at this process have fully or partially digitized M&A, saving time and money. Digital tech helps companies generate faster insights, run a more streamlined process, and measure potential value. The right applied analytics can help human analysts sort through vast sums of data, slashing due diligence and providing more actionable reports. Sixty-one percent of industrial businesses say that technology has already allowed them to reach their M&A targets faster. 

Our team at NuVescor use automated multi-directional surveys to collect strategic fit factors to better match buyers with sellers. Also, integrating the surveys, emails, phone calls, automated contact cadences, and web traffic information into our salesforce database, we are able to quickly process a large quantity of buyers and sellers.  

The Importance of Digital Leaders 
To optimize outcomes, the right leadership must be in place from the get-go. That means hiring digital leaders who know how to promote success. The majority of industrial executives say that the CIO must participate in the M&A process for it to succeed. 

M&A teams must include leaders who can guide businesses on a journey of digital transformation. They need to understand the digital capabilities of each company, and the approaches necessary for the acquisition to succeed. 

Spreading the Wealth 
Tapping into the power of thriving small companies offers a potent opportunity to those who undertake the process thoughtfully. Industrial companies should consider the following steps as they embark on digital acquisitions: 

1. Decide on the appropriate level of integration for new growth. The more acquisitions a business undertakes, the more necessary a holistic integration approach becomes. 
2. Devise a new process for digital mergers that includes valuation, target screening, and negotiation. The playbook that has been modified for the digital merger offers a key advantage. 
3. Capitalize on analytical and artificial intelligence to optimize end-to-end capacities for all purchases, both digital and traditional. Companies that can generate better and faster insights streamline the process, enabling them to extract greater value from the M&A process. 

The world is changing, and so too is the M&A process. Companies must get rid of their old M&A biases and adopt a digital-first approach. The businesses who get ahead in this process first are better positioned to win. 

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.

GRAND RAPIDS, MI –  NuVescor Group is pleased to announce the successful sale of Cheeze Kurls, Inc., based in Grand Rapids, MI, to Kilroy Partners, of Boca Raton, FL.

Kilroy Partners is a private investment firm focused on investing in entrepreneurial, family-owned and non-institutionally controlled businesses in the lower middle market.

Former Cheeze Kurls co-owners, President Timothy Dedinas and Vice President Robert Franzak, will each retain a minority ownership and will remain in advisory roles with the Company.

Franzak said Kilroy Partners is the right buyer for Cheeze Kurls, the company’s future and its employees. Other potential buyers in the past have proposed closing the plant and moving operations out of state. Not so with Kilroy, Franzak said.

“When we met with them, they provided a vision for us with what they wanted to do with the Company and how they wanted to expand,” Franzak said. “The key thing for us was Kilroy keeping the employees we had on hand at the time.

“That was number one with us – keeping the business in Grand Rapids and keeping the employees. The employees will reap the rewards of the growth that Kilroy will set forth here. Because of their mission, we decided to go with them and we feel confident with what they are going to do.”

Dedinas’ and Franzak’s fathers founded Cheeze Kurls in 1964. The sons grew up with the company and purchased it in 1999. Since then, they’ve taken it through multiple expansions. Franzak said another expansion is needed now – one of the factors that helped prompt the Company’s sale.

NuVescor Group represented Cheeze Kurls in this transaction and details of the transaction were not disclosed. “It is always exciting to work with businesses in West Michigan, and to be able to assist a company that has such a long history in Michigan was an honor,” said Randy Rua, Managing Partner at NuVescor. “We were able to find a buyer that will continue the growth trend in West Michigan which was very important to Tim and Bob.”

About Kilroy Partners
Kilroy Partners is an operationally-focused private investment firm, based in Boca Raton, FL, providing equity capital to entrepreneurial, family-owned and non-institutionally controlled companies in the lower-middle market. They invest in industries where they have experience and leverage a network of operating resources to partner with management in order to drive operational improvement and create long term value. Kilroy invests across a variety of industries including food, broad based manufacturing, industrial services and transportation & logistics. For more information, please visit: www.kilroypartners.com.

About Cheeze Kurls, Inc.
Cheeze Kurls, Inc., based in Grand Rapids, Michigan, is a private label snack food manufacturer that sells its products to retail, grocery, drugstore, wholesale and discount retailers nationwide, and provides contract manufacturing to other snack food companies. The Company produces a variety of snack types including extruded, fried and baked products as well as popcorn and party mixes. The Company has been in operation more than 50 years.

About NuVescor Group
NuVescor Group, based in West Michigan, is a distinguished mergers & acquisitions service provider that partners with other professional service providers to provide the full array of disciplines needed to have successful and timely business transactions. NuVescor works within many different industries and has a strong focus and track record specifically in the Manufacturing sector. NuVescor utilizes a proprietary proven process that greatly increases the success rates for business transactions as well as the customer experience. For additional information, please visit www.nuvescor.com.

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Manufacturing businesses have seen the industry contract to its lowest level in more than 10 years. The Institute for Supply Management’s manufacturing index fell to 47.2 in December 2019—almost as low as it was at the end of the Great Recession. A tight labor market, retaliatory Chinese tariffs, and automation all figure prominently in this downturn. Here are five trends we are seeing in manufacturing M&A in 2020. 

The Rise of the Robots 
A tight labor market is holding back manufacturing companies, but has spurred deal-making in robotics. Robots can help streamline processes, take over dangers roles, and save money. PE firms see the labor shortage as an incentive to purchase companies that can aid production. For example, Ames Drywall Finishing Tools presented Sub Capital with a powerful opportunity to purchase its automatic drywall finishing tools. Industry analysts suggest the tools can reduce costs by 60 percent. 

Corporate Divestment
Larger entities hope to shed assets that are not integral to the business core. PE is grabbing these castoffs. KPS acquired Howden in 2019 for $1.8 billion. This sale allowed the prior holder to pay down debt, as KPS grew the business into a revenue generator. 

A 2018 Ernst & Young Study emphasizes that almost nine in ten companies plan to divest of assets in the next two years—more than double the figure from just a year earlier. Global tax shifts, new tech, and emerging trends highlight the need to sell non-core assets. Seventy-four percent of executives say that the evolving technological world directly influences divestment plans. 

Tunnels and Bridges
Infrastructure investments are inevitable and highly necessary. Many PE firms are raising capital so that they can capitalize on a boom in infrastructure. The United States needs significant infrastructure investments, despite ongoing political squabbles. By building capacity now, companies can better position themselves to take advantage of the inevitable boom. The latest $1.4 trillion federal spending bill will set aside money for infrastructure repair. Those funds will likely grow with time, and investors want to ensure they are ready. 

Is Bigger Better?
In the manufacturing sector, the answer is a resounding yes. Retaining customers and growing the base is difficult. Manufacturers find that they can do so by moving into related businesses, becoming larger and more competitive. Size is the driving force behind manufacturing M&A. Companies want to be bigger. 

The biggest challenge most manufacturing companies face is attracting customers, and then retaining them. M&A blends and expands groups of customers, making better use of investments and expenses. One Equity demonstrated that in 2017, when it invested in Anvil International. Five acquisitions later, after just two years, it sold Anvil to Smith-Cooper International, which capitalized on Anvil’s big footprint to offer more services. One Equity almost doubled the organization’s EBITDA. 

Real-Time Data

Real-time data is increasingly popular across industries. It opens new opportunities, and offers significant value to customers. Manufacturers can anticipate when a part needs to be replaced, and plan accordingly, producing less downtime and frustration. Past production data is misleading, creating gaps in coverage and service, as well as quality control issues. With better data, manufacturing firms can offer faster service, improving the customer experience. 

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.

The ongoing COVID crisis has spurred worldwide uncertainty, with M&A becoming more challenging than ever. The manufacturing sector has seen changes in every aspect of transactions. Here’s what you can expect if you’re planning a transaction. 

Beginning the Process 
Travel restrictions present many challenges. Many buyers are unable to travel at all. Sellers focused on the safety of their workforce may also be unable to travel. Instead, sellers may film facility walk-throughs while relying heavily on videoconferencing. 

Travel restrictions can also make due diligence more difficult. Sellers must be flexible and accommodating, and the parties may need to adjust their timeline to accommodate pandemic-related challenges. 

Due Diligence Shifts
Due diligence can be extremely difficult with travel restrictions. One particularly important area is inventory buildup. Some buyers report this is happening as sellers seek to keep their operations running while purchases decline. Buyers should be mindful about this problem, and especially cautious that they do not purchase inventory that might soon be obsolete. Concentrated supplier issues can also be a concern. Sellers should identify any areas of specific impact, then address them well before due diligence. 

The financial diligence team also faces new challenges. Buy-side teams must ensure that recent stimulus legislation does not distort financial statements. For instance, whether a seller has utilized a CARES Act PPP loan may significantly affect post-closing operations. Deals which close prior to loan forgiveness may require a holdback or specific indemnity to ensure that the seller, not the buyer, bears the risk of the loan. There’s a similar issue with CARES Act payroll tax deferrals. 

Buyers’ legal advisors must also review the seller’s response to the pandemic. Was it flexible? Did they develop new strategies for continuing to operate? Did they prioritize the safety and well-being of their staff, or did they doggedly persist with the old way of doing things in an inflexible manner? 

Valuation and Financing Issues
The biggest challenge with most transactions is going to be the way the pandemic affects valuation. Buyers will be reluctant to give full credit for pre-pandemic performance, but sellers will be equally reluctant to reduce the purchase price for something they anticipate will be a short-term crisis. In many transactions, a good idea is to defer some part of the purchase price, and to condition the post-closing payment on specific financial results. Buyers usually hope to base this earn-out on a net profit or EBITDA metric, while sellers prefer gross revenues or a similar bright line metric. Take great care when negotiating these provisions, as well as any covenants regarding post-closing operations. 

Similarly, most lenders will no longer be willing to finance pre-pandemic equity: capital ratios. This has increased demand for seller financing. This presents a number of challenges, but it also means that sellers who can finance a portion of the deal may be positioned to ask for more favorable deal terms. In some cases, seller financing may even mean the difference between whether or not a deal successfully closes. 

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.