Why Acquiring Smaller, Agile Manufacturing Firms Could Be Your Next Smart Move

When it comes to expanding your manufacturing business, bigger isn’t always better. In my experience, some of the most transformative growth comes from acquiring smaller, highly specialized shops. While these companies might be smaller, they can bring unique technologies, niche expertise, and innovative approaches that can be game-changers for your operations. 

Starting Small for Easier Integration 

It’s often better to start with a smaller company when you’re considering your first acquisition (around 10% to 20% of your size). Integrating a company that’s half your size can be overwhelming and risky. Smaller acquisitions are generally easier to manage and can be seamlessly integrated into your existing operations. 

I’ve also seen companies acquire firms that are even just 1% of their size. You might wonder why bother with such a small acquisition. The reason is that these smaller firms often bring something unique to the table—specific technology, expertise, or niche capabilities that are hard to develop internally. 

For instance, a $150 million plastics company I worked with acquired a $2 million automation firm. Despite the size difference, this small acquisition allowed them to integrate specialized automation technology across all their facilities. The goal wasn’t immediate revenue growth but enhancing capabilities and gaining a competitive edge. 

Leveraging Niche Expertise 

Smaller firms tend to be highly specialized because they can’t be everything to everyone. This focus often leads them to innovate more within their niche. They also understand the challenges unique to their segment of the market. 

When a larger company acquires a smaller, niche firm, they acquire specialized knowledge and innovative approaches. This can prove to be valuable in an industry where technology and expertise are critical. 

Challenges and Solutions in Integration 

One of the biggest challenges in acquiring a small company is retaining the key people who make it successful. In many cases, the business owner wears multiple hats—acting as the general manager, sales leader, and sometimes even the chief financial officer. If you don’t have a plan to retain or replace that talent, you risk losing the very value you sought in the acquisition. 

Identify key team members early on and consider retention strategies like stay bonuses or clear career paths. Without this planning, the integration can falter, and the acquisition may not deliver the expected benefits. 

Understanding the culture of the small firm is also critical. Smaller companies often operate differently—they may be more entrepreneurial, with employees who are independent and self-starters. If the culture clashes with that of your larger organization, it can hinder the innovation and agility that made the smaller firm attractive. 

Sometimes, it’s best to allow the acquired company to maintain some level of autonomy. Let them continue to do what they do best while providing them with the resources and support to thrive. This approach can help preserve their innovative edge while integrating them into your broader strategic goals. 

Positioning Small Firms for Acquisition 

For small manufacturing firms considering being acquired, focusing on your niche and building a strong, self-sufficient team can make you an attractive target. I’ve seen too many small companies try to diversify too broadly, which can dilute their value. Stick to what you do best and make sure you have systems in place that don’t rely solely on the owner’s involvement. 

By making your company easy to integrate—what we sometimes call “easy to roll up”—you not only become more attractive to potential buyers but can also command a higher valuation. Increasing the multiple that buyers are willing to pay can significantly enhance your company’s value because they see the strategic advantage in what you offer. 

Looking Ahead 

Manufacturing is changing rapidly, with increasing competition and technological advancements. Acquiring smaller, agile firms can provide the innovation and specialized expertise needed to stay ahead. Whether it’s new technology, niche market access, or unique products, these acquisitions can offer significant advantages. 

But remember, success depends not just on the deal itself but on how you integrate and support the new addition to your company. Plan ahead, focus on retaining key talent, and be mindful of cultural differences. 

If you’re considering such a move, we’re here to guide you through the process. At NuVescor, we specialize in matching buyers and sellers in the manufacturing sector, ensuring that each transaction is a stepping stone toward greater success. 

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Why Growing Through M&A is the New Normal in Manufacturing

In the modern manufacturing industry, growth through mergers and acquisitions (M&A) has shifted from a strategic option to a leading pathway for expansion. With the increasing market complexity, labor shortages, and rapid technological advancements, M&A has become essential for companies that want to stay competitive and thrive. For many, it’s a faster, more efficient way to reach their goals compared to the often slower and riskier route of organic growth.

The Changing Landscape: More Companies Ready to Sell

One of the largest shifts we’ve seen in manufacturing over the last few years is the sheer number of acquisition-ready businesses now available. Many of today’s manufacturing companies are led by owners from the Baby Boomer generation who are ready to exit but lack successors. This creates a “buyer’s market” in the sector, where manufacturers can strategically acquire companies to enhance capabilities, expand geographically, or secure skilled talent—advantages that were far more challenging to achieve a decade ago.

The limited pool of individual buyers interested in owning and operating manufacturing businesses further increases acquisition opportunities for companies actively seeking growth.

The Manufacturing Segments Leading M&A Activity

While M&A activity is rising across the board, certain sectors are leading the charge. Industries like plastic injection molding and metal fabrication are prime targets. These sectors have a high number of small to mid-sized businesses, many of which are family-owned and without a clear succession plan.  For buyers, this presents a unique opportunity to acquire well-run companies with strong foundations.

Automation is another hot area for M&A, but for a different reason. Building automation capabilities from scratch is tough and requires specialized expertise. Instead of trying to recruit and develop that talent internally, companies are finding it easier to acquire automation businesses that are already equipped with skilled teams and technical know-how. This approach isn’t just faster; it’s often more cost-effective, providing instant access to capabilities that would otherwise take years to develop.

Why Companies Opt for M&A over Organic Growth

The motivations behind manufacturing M&A vary, but they often come down to three key areas: capacity, geographic reach, and technology. Each of these factors addresses a need that organic growth can’t meet as quickly or efficiently.

For example, a manufacturer looking to serve customers in a new region can benefit from acquiring a local company rather than building a facility from the ground up. Not only does this save on setup time, but it also provides immediate access to the local workforce and customer base. Similarly, companies looking to enhance their technology can bypass the R&D phase by acquiring a business that’s already at the forefront of innovation.

There’s also the challenge of today’s labor market. Skilled labor is in short supply, and even though more people are re-entering the workforce, finding the right talent remains difficult. Acquisitions provide an advantage here, too. When you buy a company, you’re acquiring not just its equipment or customer relationships but also its team—a team that’s already trained, experienced, and ready to contribute.

M&A Offers a Faster Path to Scale

One of the main advantages of M&A is speed. Growing your business by 10-20% organically could take years, but with the right acquisition, that same growth can be achieved in a matter of months. For manufacturing companies, where timing and efficiency are essential, this difference is substantial. You’re not just expanding capacity—you’re gaining the ability to hit the ground running with minimal lag.

Of course, doubling the size of your business through acquisition brings its own set of challenges. Large integrations take time, and the process needs to be handled carefully to ensure that the merged entity functions smoothly. But when you’re targeting an acquisition that adds 10-20% in volume, the integration can often be done quickly, providing a significant boost to your top line and capabilities in a short timeframe.

Advice for Manufacturing Owners Exploring M&A

As the economy remains stagnant or even declines, the companies that lean into M&A will be the ones that continue to grow and adapt. M&A allows businesses to achieve growth that isn’t feasible through organic means in a low-growth environment. And as the talent pool for traditional business ownership shrinks, it’s becoming even more difficult for owners looking to exit to sell to individual buyers. This dynamic creates more opportunities for strategic acquisitions by companies that are ready to grow.

Whether it’s gaining access to a new market, acquiring technical expertise, or scaling up quickly, M&A offers manufacturers a powerful tool for navigating today’s challenges and positioning for tomorrow’s opportunities. At NuVescor, we’re here to help manufacturers take that next step strategically, with the experience and insight to make it successful.

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