by Garrett Slate | Jan 4, 2022
We are rapidly approaching the two-year anniversary of the COVID-19 pandemic’s arrival on American shores, though to many it feels like it’s been a lot longer—thanks to a plot that keeps repeating itself. Americans trapped at home continue to purchase like never before, overloading an already struggling logistics infrastructure. So what should manufacturers expect in the coming year? Just like COVID, the central themes of prior years are not going away. These are the manufacturing trends we’re watching as we head into the new year.
High Demand, High Barriers
While preliminary signs suggest that supply chain issues may be easing in the United States, the issue has proven quite severe, so don’t expect full relief any time soon. The sales manufacturers couldn’t complete last year may still be difficult this year—and may even go away. However, the M&A market continues to be flush with high demand. Pricing power remains high, too, thanks to high demand for supplies and services.
A Rebounding Market
The aerospace sector is still struggling, but everywhere else industrial businesses are approaching or even exceeding pre-pandemic sales levels. Forecasts suggest that manufacturing will experience more than just the typical recovery. The pressure of COVID has forced many companies to re-evaluate their operations, encouraging them to partner with factories closer to home. Consequently, there have been a number of blockbuster North American factory announcements in the electric vehicle and semiconductor markets. Other markets may soon see similar changes. The spending is spreading, and this will probably continue.
Emerging Trends
Some other trends we’re seeing include:
- The need for more capacity to keep up with companies’ projected growth. This may lead to an increase in capital spending.
- A push toward carbon neutrality. Going green isn’t cheap, but it can confer numerous benefits to companies that can afford it.
- A tight labor market. Wages are rising, and it’s increasingly difficult to fill roles. We may see both more automation and increased labor costs.
- The effects of inflation. Manufacturers tend to outperform other sectors during times of high inflation.
- Choosier investors. Investors are keenly aware of the effects of the COVID-19 pandemic, and will be assessing how a company adapted during the pandemic, as well as how the crisis affects a company’s long-term outlook.
As always, one factor remains consistent. Companies with consistent high earnings, well-run operations, and a coherent, profitable plan for the future stand to thrive in the coming years, positioning them well for lucrative M&A deals.
by Randy Rua | Dec 16, 2021
As we look forward to the upcoming year, many business owners are taking a step back to evaluate where they can add value to their businesses. Whether you’re looking for an exit strategy or just to make a simple value increase, these tips can help boost company value this year.
If your goal is to build a more valuable company in 2022, here are some New Year’s resolutions to consider:
1. Stop chasing revenue.
A bigger company is not necessarily a more valuable one if the extra sales come from products and services that are too reliant on you to deliver them.
2. Start surveying your customers using the Net Promoter Score methodology.
It’s a fast and easy way for your customers to give you feedback, and it’s predictive of your company’s growth in the future.
3. Sell less stuff to more people.
The most valuable companies have a defendable niche, selling a few differentiated products and services to many customers. The least valuable businesses sell lots of undifferentiated products and services to a concentrated group of buyers.
4. Drop the products or services that depend on you.
If you offer something that needs you to produce or sell it, consider dropping it from your offerings. Services and products that require you to have too much input suck up your time and cash and don’t contribute significantly to your business’s value.
5. Collect more money upfront.
Turn a negative cash flow cycle into a positive one and you boost your business’s value and lessen your stress load.
6. Create more recurring revenue.
Predictable sales from subscriptions or recurring contracts mean less stress in the short term and a more valuable business over the long run.
7. Be different.
Refine your marketing strategy to emphasize the point of differentiation that customers value. Be relentless in highlighting this advantage.
8. Find a backup supplier for your most critical raw materials.
Consider placing a small order to establish a commercial relationship and diversify the sources of your most difficult-to-find materials.
9. Teach them to fish.
Answer every employee question of you with “What would you do if you owned the business?” Your goal should be to cultivate employees who think like owners so they can start answering their own questions without coming to you.
10. Create an instruction manual.
Document your most important processes so your employees can do their work independently.
Here’s to building a more valuable company in 2022!
Looking to build value with an exit plan in mind? NuVescor can help.
Our preparation process is a 60-90 day version of an exit plan that gives business owners what they need to determine what their business is worth, who would be interested in purchasing it, and what the proceeds of the sale might look like. This can help put business owners at ease and gives them the info necessary to decide if and when they want to exit and move on to their next stage of life.
To learn more about this opportunity, visit our “Selling Process“ page or click here to get in contact with us!
by Garrett Slate | Dec 15, 2021
Your manufacturing M&A team can make or break the transaction well before the buyer gets involved. The right legal counsel is key here. Don’t just hire the first lawyer you interview, or rely on your in-house counsel to shepherd the deal through to completion. A highly experienced M&A attorney brings real value to the transaction by helping you comply with your legal obligations and ensuring your business is prepared for a sale.
Before you hire an M&A attorney, it’s important to ask pointed questions to assess the lawyer’s experience and legal acumen. Get started with the following queries:
- Does the firm specialize in manufacturing M&A, and have a demonstrated history of successful deals?
- Does the firm usually represent buyers, sellers, or both?
- What are some recent successful transactions they can point to? Can they offer references?
- Can the firm describe a recent example of a transaction, the issues that arose during the transaction, and how the firm managed those issues?
- Does the firm have a history of representing private equity or venture capital entities?
- What size transactions does the firm specialize in?
- Will you be working with a partner or a junior associate?
- How much time will the firm be willing to devote to your transaction?
- What is the specific fee structure and breakdown you can expect? How often will you be billed?
- Are they a local, global, ore regional firm? Where are their offices located?
- Do they have experience with cross-border intellectual property language?
- What is their tax experience? Can they deal with cross-national taxes?
- What is their experience negotiating representations and warranties?
- Does the firm have experience negotiating indemnification agreements? What is that experience?
- Will the firm consider a fixed fee?
- Does the firm have any potential conflicts of interest?
- How many people will work on your transaction?
- How frequently should you expect to meet with the firm?
- How long will it take to get a return call or email from a partner?
This list is by no means inclusive of all potential questions. So it’s important to consider other issues that may be important to your business, such as experience with specific technologies, a commitment to diversity and inclusion, or experience with government contracts. This is like any other job interview, so treat it as such and ask whatever you need to know to feel confident in the firm’s skill.
by Garrett Slate | Dec 15, 2021
As the supply chain tightens, manufacturing companies are in increased demand, especially those that have found a way to work around supply chain shortages and the global uncertainty wrought by the COVID-19 pandemic. If you’re considering folding a second or third business into your own, or investing in a new manufacturing company for the first time, asking the right questions can ensure you make the most of the deal, while minimizing risk. Ask these questions before buying a manufacturing business.
How has this company performed during COVID?
COVID put every company to the test, especially manufacturing businesses. It’s expected that some companies would see a downturn during the pandemic. Nevertheless, how the business handled the pandemic reveals much about their ability to think creatively and flexibly. Did the company find ways to protect its staff and clients? Or did it cling to the ways o the past, unable to see another way of doing things? Did it generate new business, develop new technologies, and make the most of a challenging economic environment? Or did it just keep waiting for COVID to go away, denying the reality of the situation?
What is the future of this manufacturing sector?
No matter how strong an individual company appears, it’s important to look at the larger niche in which it operates. Is the niche growing? Or are you investing in a sector that may eventually cease to exist thanks to changing technology, shifting mores, and automation?
What is the long-term strategy here?
How is this company planning to compete in a 21st century economy, and what can you do to make it even more competitive? Good investments have good strategies. Bad investments keep doing things the way they have always been done, and hope for the best. You should have a clear vision for the future of the company, and that vision should be firmly rooted in past performance and evidence-based forecasts.
Is the company financially healthy?
Sometimes it’s a good idea to buy a struggling company and then grow it into something better, but only if you have specific experience doing so and a strong plan for getting the company back on track. In most cases, these struggling companies are money pits. You need to ensure the business is financially healthy. This means taking a long hard look at financial statements, conducting due diligence, and evaluating any potential liabilities, including possible lawsuits. Look also at financial forecasts, which may help you thoughtfully assess where the company may be in a few years.
What will I do differently as owner?
Ideally, prospective owners should have a plan for what they intend to do differently—and better—to promote greater profitability and growth. If you can’t identify specific changes you intend to make in the company’s operations, then you should not expect it to grow. And if you’re not clear about the overall operational picture of the company, it’s critical to get these details before even considering making an investment.
by Randy Rua | Nov 18, 2021
Employee Stock Ownership Plans (ESOPs) are more than just a fad. The benefits of having a plan by which a company’s capital stock is bought by its employees or workers are very real and tangible. In fact, NuVescor is currently helping two well-established ESOP’s grow through acquisition. We are also selling one of our manufacturing clients to a well-established ESOP.
Despite the benefits of ESOPs, there are some pitfalls. While setting up an ESOP from scratch can be an attractive option, getting an ESOP off the ground does not happen overnight – and creating one within your company can occupy lots of time and resources. For companies looking to enjoy those same benefits without the high startup costs and risk, selling to an ESOP can be a better alternative.
The problem with starting an ESOP from scratch
- High up-front costs – Setting up an ESOP can cost hundreds of thousands of dollars. It is also typically recommended the company has at least 50 employees and an established management team to run the business without the owner.
- Owner financial risk – On top of the regular up-front costs, owners often have to provide financing or personal guarantee bank financing to fund the purchase of the business. For owners who are looking for a comfortable succession plan, this brings added risk to their efforts to step away from the business.
- Major time investment – Most ESOPs don’t begin to run smoothly until several years after they have started. There’s also a major risk that getting an ESOP off the ground can become a major distraction and cause tension within the company – all while taking the focus away from core business activities.
The benefits of selling to an ESOP
- Avoiding the early pitfalls – Selling to a successful ESOP has a lower barrier of entry as there is safety in the size and resources of an established ESOP when it comes to managing companies and their assets.
- Step away sooner and more comfortably– If your business’s main reason for entertaining the idea of an ESOP is to set up a succession plan, selling to an ESOP provides a quicker and safer solution. If you’re selling to an established ESOP, your company will be able to start transitioning right away with a proven model rather than having to develop and troubleshoot its own. For owners who are looking to retire or move on from their businesses, this provides a quicker solution while providing confidence that the company is in good hands.
- Tax savings advantages– Sellers can save on taxes when selling to an ESOP, but that’s not the only advantage. Many ESOP’s do not pay federal tax. Therefore, an ESOP-owned company is more willing to buy stock in a C Corp because they don’t need the ability to depreciate the assets from an asset sale. If done correctly, the seller can take the proceeds from selling their stock and put them into other investments deferring any tax until they sell those investments. This allows them to have some control over when they pay federal taxes and how much money they want to pay so their CPA can help them put together a tax minimization strategy.
- Benefits to employees – Employees of the selling business become owners. Because of this, ESOP’s typically have better benefits and compensation for their employees than non-employee-owned companies. Most of our business owner clients would prefer to sell to their employees but this usually isn’t an option due to financing and the risks outlined above. Selling to an ESOP gives businesses the best of both worlds – employee ownership without the financial risks.
What we’ve seen at NuVescor
In our years of experience in manufacturing industry mergers and acquisitions, clients ask us to focus on ESOP buyers to provide their employees with the opportunity to be owners without having to find a way to finance the transition. The option to sell to ESOPs rather than start them from scratch also ensures sellers that the management is strong enough to operate the business without them. Meanwhile, the sellers, buyers, and employees involved in the ESOP enjoy the advantages that come with the major tax-saving opportunities.
For over a decade, NuVescor has been a leader in the Manufacturing Mergers & Acquisitions industry in Michigan. With years of experience and a proven process, our team delivers excellent results, whether you want to buy or sell a business.
If you’re looking to sell to an ESOP or if your ESOP is looking to grow through mergers and acquisitions, NuVescor can help. Click here to get in contact with us.
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