How do you know if you can trust the M&A firm you plan to hire? Have them continually give you proof and do not just take them at their word when they say “You can trust us.”
Determine the M&A Firm’s ability to prove with data they can meet your goals before committing
1. When in the process will you know if they can meet your minimum threshold of value from the type of buyer you want to sell to?
2. When will you know if the firm can create the needed buyer pool confidentially, efficiently, and in a timely manner in order to receive multiple proposals?
3. Can you easily get out of their engagement agreement if they cannot meet your goals?
Prove with a documented transparent process the M&A Firm’s ability to put in the effort required
4. Who is involved in their M&A process and do they have the skills and capacity to do what is needed?
5. How much of your time does the firm need to run their process? Will you be distracted from running the business?
6. Will the firm do the extra work to give you all the data needed to make sure you select the right buyer?
7. How will you know if the firm is doing what they told you they would do? How is each team member held accountable?
8. Can you fire them at any time if needed?
Ensure the M&A Firm’s fee structure and team member compensation align with your success
9. Is the person or persons working for you incentivized to put in the extra effort?
10. Does the compensation plan allow them to work well together as a team?
11. Does the fee the firm receives incentivize them to maximize your value?
Establishing a process to effectively compare firms is how you will find the most suitable fit and ensure the process runs as smoothly as possible. Finding an M&A firm that aligns with you and your business is what’s most important in your sale or acquisition.
As M&A in manufacturing heats up, rising interest rates and inflation serve to reduce the potential value of these mergers, especially without good planning. A thoughtful strategy can help generate value via M&A. Here are some critical tips to keep in mind.
Start Early and Plan Ahead
A merger demands time and expertise, and the more of both you have, the better positioned you will be to manage problems as they arise. Bring in the right teams early to prepare for the sale as well as the post-sale integration. Intelligent dealmakers are constantly re-evaluating ways to fast-track the realization of the promised deal synergies.
Optimize Digital Opportunities
Keep an eye on potential automation and digital opportunities that could boost transaction efficiency. One recent McKinsey report suggests that reducing the costs of traditional legacy systems may offer about a 2% boos tin value. Adding additional digital and analytics technologies to boost efficiency may generate savings as high as 4-5%.
Identify and Address Staffing Implications Early
Workforce implications to a deal should not be an afterthought. You must focus on strategies for retaining talent, even when doing so increases costs. Contract talent increases integration risks. It’s better to spend a little more upfront on retaining key talent. Consider it an investment in the future of the new entity.
Adapt to the Needs of the Business
Too often, dealmakers attempt to adapt the business to the needs of the deal rather than the other way around. Your targets should be tailored to the needs of the business. Develop specific benchmarks for measuring success, and continue to adapt these benchmarks based on real-world data.
Simplify Technological Complexities
Manufacturing mergers often trigger significant and complex technological challenges. These strategies can help simplify:
Nurture a flexible data and transaction architecture.
Leverage proven integration patterns rather than trying to invent your own.
Cloud-first always. Cloud-based technologies save time, money, and frustration.
Create a standalone mirror copy to test new technology before attempting to fully transition or integrate.
In an uncertain world, intelligent planning is critical to the success of manufacturing M&A. Your plan must be well-planned, well-executed, and fully informed by the realities of your niche. Expert insight can help you ensure your deal is prepared to meet the challenges of the post-pandemic world, and protected against the looming specters of inflation, rising interest rates, and a pandemic backslide.
The early stages of the COVID-19 pandemic and a supply chain crisis brought M&A manufacturing to a near-standstill. But now, manufacturers are back up and running, and many are looking to M&A as a way to grow their businesses, exit into retirement, and earn a tidy profit. But manufacturing M&A isn’t just for thriving businesses. If your manufacturing company is struggling, M&A might be a way out. Here’s what you need to know.
M&A as an Exit Plan for Struggling Businesses
If you’re wondering how you can use M&A to your advantage when you exit, there are a few options. They include:
Selling your company outright, often at a fraction of its potential value.
Buying another company to supplement your offerings and help your business recover.
Selling off a struggling portion of your company so you can focus on more profitable elements.
Liquidating assets and selling them.
Is Now the Right Time?
If you’re contemplating a sale, now is actually always going to be the lowest risk time to sell. Why? Because you know where you stand right now. Moreover, interest rates are likely to increase and multiples may decrease, making your business less sellable in the future than it is right now. Even if you increase value, if your multiple plummets, the real-world meaning of that value will, too. So if you know you want to leave your company, the time to make your exit is now. Working with an M&A advisor to help plan your exit can help you extract the most value, even when your company is struggling.
Exhausting Other Options
If you’re leaving solely because your company is struggling, it’s important to consider exhausting all other options first. Can you bring in new management? Raise capital? Invest more time and energy into the company?
Buyers are inherently risk averse, especially in the wake of COVID. They don’t want to buy a struggling company, especially not for a premium price. And if they hear you’re walking away because you don’t know what else to do, this is a major deterrent. So before oyu put your company on the market, you must be absolutely certain this plan is best for you.
Get a Valuation
When you prepare to walk away, work with a valuation expert. Knowing the actual value of your company can help prevent unpleasant surprises, and may even help you generate additional value if you have a little time. Some owners of struggling businesses skip this step, but that’s a decision that is to their detriment. Knowledge is always power, even when the information isn’t exactly as positive as you would like.
Global manufacturers are facing a range of pressures: a supply chain shortage, recovering from the pandemic, an uncertain post-pandemic future, and increased competition for limited resources. This combination of challenges has strongly affected how global manufacturers think about M&A.
So what specific factors are coloring perceptions as we move into 2022 and, hopefully, into a new wave of fewer pandemic-related considerations? These issues figure prominently:
Ecosystem changes. As a result, many businesses are looking to partner with others to create new ecosystem solutions.
Business resilience. Manufacturing executives considering an acquisition are increasingly measuring the target company’s resilience when assessing value and weighing whether to invest.
Bolt-on acquisitions. These are becomingmore popular options, allowing two companies in the same sector to decrease competition and increase market share. Transformative deals are becoming less popular, and purchases in adjacent sectors have dramatically decreased.
Geopolitics and international strategy. Government policies are increasing domestic production to boost national competitiveness. These regulations color perceptions of global M&A. Some companies are focusing more on domestic transactions, while others are looking only to international transactions where the regulatory environment is favorable.
Major strategic drivers. Our clients consistently report to us that regulations, trade changes, supply chain issues, and tariffs continue to color M&A decisions. The United States remains a popular destination for international manufacturing acquirers, who hope to be closer to customers. India is a close second. Manufacturers intend to expand their reach to Europe and Asia in the next few years, especially if the regulatory environment and pandemic-related disruptions move in the right direction.
In 2022, we anticipate M&A will move in two distinct directions. For some manufacturers, supply chain disruptions and the ongoing effects of the pandemic will temper any M&A ambitions. For others, M&A will provide a path out of prior disruptions. Overall, we anticipate an M&A rebound, and believe that businesses which are well-prepared for these transactions can still gain immense benefits from them.
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.
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