Understanding Buyer Motivations and Strategies in M&A

An interview with Nick Good, Advisor with Rua Associates

Navigating the world of mergers and acquisitions (M&A) can be a complex journey, especially for business owners looking to sell their companies. Recently, Seth Getz from NuVescor had an insightful discussion with Rua Associates Advisor Nick Good, who shared valuable insights into the different types of buyers in the market and how their motivations can impact the sale process.

Types of Buyers and Their Motivations

One of the key topics discussed was the variety of buyers that sellers might encounter. According to Nick, understanding the different motivations of these buyers is crucial for a successful sale. “We see different types of buyers with unique motivations. Corporate buyers, for instance, are often looking to expand their market share or acquire new technology,” Nick explains. “They’re typically motivated by strategic benefits and might be willing to pay a premium for synergies they foresee.”

On the other hand, financial buyers, such as private equity firms, have a different approach. “Financial buyers are generally focused on the potential for financial returns. They look at your business as an investment and are keen on its growth potential and profitability,” Nick says. This distinction is vital for sellers to understand, as it can significantly influence the negotiation process and the final deal structure.

Strategic Growth Through M&A

Nick also touched on how companies can leverage M&A to achieve strategic growth. “Acquiring another business can provide immediate access to new markets, customers, and capabilities,” he notes. This approach can be particularly beneficial for businesses looking to accelerate their growth trajectory without the time and resource investment required for organic growth.

However, Nick cautions that this strategy comes with its challenges. “Integration is a critical phase. It’s where many deals falter. Ensuring cultural alignment and operational compatibility is essential for the long-term success of the acquisition,” he emphasizes.

Preparing for Sale to Maximize Value

Preparation is key to maximizing the value of a business when it comes time to sell. Nick advises that owners should start planning well in advance. “It’s not just about cleaning up the financials, although that’s important. It’s also about having a strong management team in place and demonstrating a clear growth strategy,” he says.

He also points out the importance of understanding the current market trends and valuation multiples within the industry. “Being well-informed allows you to set realistic expectations and position your business more attractively to potential buyers,” Nick adds.

Practical Steps for Succession Planning

For those considering succession planning, Nick offers practical advice. “Start early and involve key stakeholders in the process. Whether you’re passing the business to family members or selling to an external party, having a clear plan can mitigate potential conflicts and ensure a smoother transition,” he advises.

Nick also highlights the importance of seeking professional guidance. “Engaging with experienced advisors can provide you with the expertise needed to navigate the complexities of M&A and succession planning,” he recommends.

“Knowledge and Preparation are Your Best Allies in this Journey”

In the ever-evolving landscape of M&A, understanding the motivations of different buyers, strategically preparing for sale, and planning for succession are critical components of a successful exit strategy. As Nick Good puts it, “Knowledge and preparation are your best allies in this journey.”

By understanding what drives different buyers and preparing your business accordingly, you can maximize value and achieve a successful outcome.”

For more insights and personalized advice, Nick Good and Seth Getz can be reached through NuVescor, where they continue to support business owners in navigating the complexities of mergers, acquisitions, and succession planning.

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Navigating Family Business Succession: Expert Tips for Family-Run Manufacturing Businesses

An interview with Amy Wirtz, Senior Consultant with The Family Business Consulting Group 

Family businesses are the backbone of many industries, particularly in the manufacturing sector. However, succession planning in these businesses often presents unique challenges. Recently, Seth Getz from NuVescor sat down with Amy Wirtz, a succession planning expert, to discuss strategies for navigating these complex transitions.

Understanding the “Why” of Ownership

One of the critical aspects Amy emphasizes is understanding the “why” behind ownership for each generation. Entrepreneurs often have clear motivations like creating their own identity, seeking freedom, or building something significant within their community. However, second-generation owners often find themselves inheriting ownership, leading to different motivations and challenges. 

“It’s crucial to plan for these transitions,” Amy explains. “The ‘why’ of ownership for each generation can change significantly. Entrepreneurs usually have a very defined purpose, but second-generation owners often struggle with understanding their role and motivation because they inherit the business rather than choose it.” 

Amy points out that this difference in motivation necessitates thorough planning of leadership development and ownership transitions to ensure the business’s continuity and success. 

Preparing for Non-Family Leadership

A significant shift in family business dynamics can be the need for non-family leadership. Amy discusses the reality that while family members can work in the company, they may not always be suited for top leadership roles due to a lack of experience or different interests. 

“We discuss the business’s growth needs versus the family’s human capital,” Amy notes. “Family members might not be ready to take on CEO or CFO roles, and sometimes bringing in a non-family CEO can be the best option. This approach can involve non-family leaders buying a small equity stake, ensuring their commitment while keeping majority control within the family.” 

This strategy allows for continued business growth and profitability while the family retains control and benefits from ongoing dividends, rather than opting for a one-time exit. 

Maintaining Company Culture

Company culture is a crucial element in the success and valuation of a business. Maintaining this culture through leadership transitions can be challenging but is essential. Amy highlights the importance of identifying and preserving core cultural elements that define the company’s identity. 

“Culture will naturally evolve with new leadership,” she explains. “However, maintaining the foundational values that make the company unique is vital. Each generation can add their spin, but the essence should remain constant. This approach ensures continuity and stability for both employees and customers.” 

Amy suggests focusing on core values such as customer service excellence, community involvement, and quality standards. By doing so, businesses can ensure these values are upheld even as leadership and ownership evolve. 

Successful Case Studies of Family Succession Planning: Hussey Seats and Lodge Cookware

Amy shares inspiring examples of companies that have successfully navigated these transitions. Hussey Seats, based in Boston, has maintained its core values through generations by holding family council meetings twice a year. These meetings reinforce their commitment to quality, service, and community involvement. 

Similarly, Lodge Cookware, known for its cast iron products, has over 200 shareholders and keeps its family history and values alive through annual retreats at their ancestral farmhouse. These gatherings reinforce their commitment to maintaining a strong family bond and a cohesive business strategy. 

Key Considerations for Entrepreneurs: Keep or Sell?

 For entrepreneurs contemplating whether to sell their business or pass it on to the next generation, Amy advises asking critical questions about their legacy and the opportunities they want to foster for the next generation. 

“The question to ask is whether you want to retain your dream or create opportunities for your children’s dreams,” Amy explains. “If the business is only continuing because it’s the entrepreneur’s dream, it may not be sustainable. However, if the next generation has a clear vision and passion for the business, they are more likely to succeed.” 

Amy underscores the importance of involving the next generation in these decisions and understanding their interests and capabilities. This involvement ensures a smoother transition and increases the likelihood of continued success. 

Strategic Planning for Established Family Management Groups

For established family management groups, Amy stresses the importance of having a well-defined strategic plan and placing qualified individuals in management roles, irrespective of family ties. 

“Distinguishing between ownership and management is crucial for long-term success,” she advises. “Family members can be owners, but management roles should be based on qualifications and skills. This approach ensures that the business is run effectively and continues to grow.” 

Succession planning in family businesses is a complex yet essential process. By understanding the evolving motivations behind ownership, preparing for potential non-family leadership, maintaining company culture, and asking the right questions, family businesses can navigate these transitions successfully. 

For more insights and personalized advice, Amy Wirtz can be reached via email at wirtz@fbcg.com.  NuVescor remains dedicated to supporting businesses through these critical transitions, ensuring their continued growth and success. 

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Why Now Could Be the Perfect Time to Sell Your Manufacturing Business 

After spending many years (if not decades) building up a successful manufacturing business, eventually you’ll begin to think about exiting the company. One of your first questions is likely to be, “Is now a good time to sell?” 

If you only look at the news headlines, you might assume it’s a difficult time to sell a business and achieve a good outcome. After all, inflation has proven persistent, interest rates are still elevated, and the future of the economy appears uncertain. However, it actually could be the perfect time to sell your manufacturing business, based on several positive trends. 

Buyers Are Active 

While the deal volume is not nearly at the levels of 2021 and 2022, investors are actively buying businesses and completing deals at attractive multiples.  

PwC is forecasting M&A deal volume in the industrial manufacturing sector to ramp up during the second half of 2024, particularly for small- and mid-sized companies with the potential to help buyers bolster their capabilities. Similarly, a KMPG survey of C-suite executives found 65% anticipate M&A activity growth this year, with industrial manufacturing one of the top three areas of focus. 

Both private equity (PE) groups and strategic acquirers are currently in search of high-quality manufacturing companies.    

• PE investment has been a mainstay of manufacturing, with PE groups pumping more than $1.4 trillion into over 11,000 manufacturers in the US over the last 10 years (per a report by Pitchbook and the American Investment Council). And these investors are still sitting on significant capital they must deploy—by some estimates, as much as $1 trillion in the US alone. Many PE groups are drawn to manufacturing because these businesses aren’t banking on a speculative concept to take off; they’re selling tangible products and typically generating steady cash flow.  
• Many strategic acquirers have strong balance sheets that can support acquisitions, thanks to investment spurred by the Inflation Reduction Act and the Bipartisan Infrastructure Law; federal subsidies for electric vehicles, semiconductors, infrastructure, and clean energy; and millions of dollars in Paycheck Protection Program (PPP) loans. Many corporations view a manufacturing acquisition as an opportunity to diversify their product line or customer base, expand into a new market, or supplement their production capabilities.  

Smart Technology Adoption Could Spur More Activity 

The digital transformation of manufacturing has the potential to make many businesses more attractive to investors. As manufacturers leverage process automation technologies and generative AI to drive efficiency on a large scale or transform how work is done, they are building greater enterprise value and finding themselves on investors’ radars.  

While reducing costly labor with automation is critical, investors are even more interested in businesses that use smart manufacturing technology to innovate. For example, using high-tech cameras and laser scanning to inspect parts against quality tolerances can yield massive quality improvements that make the company more competitive while increasing margins. One manufacturer implemented resource management software that drove significant efficiencies, which enabled them to grow at a healthy 30-40% per year and eventually attracted more buyers willing to pay more for the business. The application of AI in manufacturing is likely to prove a catalyst as well, with a State of Smart Manufacturing report noting that gen AI is expected to be one of the top ten areas of investment for manufacturers over the next 12 months.  

Other Trends Make It Challenging 

The manufacturing M&A picture isn’t all rosy though, as there are several hurdles that business owners should be aware of.  

First, valuations are under pressure as manufacturers face the dual challenges of persistent inflation and relatively high interest rates, making it difficult for some to avoid losing business to lower-cost providers outside the US. For example, a CNC and machining company’s EBITDA (earnings before interest, taxes, depreciation, and amortization) decreased by two-thirds after a major customer moved its business to a supplier in China. For auto manufacturers investing in electric vehicle (EV) production, the high cost of capital to finance the necessary retooling projects and potentially slow adoption can weigh on revenue and margins, reducing valuations. 

Second, though there is great interest in reshoring manufacturing, challenges remain. The supply chain constraints spurred by the pandemic and exacerbated by geopolitical tensions underscored the downsides of offshoring manufacturing. Yet, inflationary pressures and elevated interest rates make it tough for manufacturers to invest in US-based production and still stay competitive, further weighing on valuations. 

How Do You Decide If the Time Is Right? 

While there is no way to predict what the future holds, the fact that interest rates seem to have hit their peak and inflation appears to be stabilizing are positive signs for manufacturing M&A. And with both PE and strategic buyers still active right now, demand is strong for quality manufacturing businesses. However, whether the time is right to sell your business depends on more than just macroeconomic conditions and buyer demand.  

The manufacturing M&A experts at NuVescor can help you assess whether now is a good time to sell your manufacturing business, based on your unique goals and situation. We follow a proven process designed to help you make this complex decision and move forward with confidence. 

• The NuVescor team determines an accurate valuation for your business, going beyond standard benchmarks and delving into the strategic reasons a buyer would purchase your company. 

• We survey our wide network of buyers in a blind fashion to determine if there is interest in a business like yours and what these buyers perceive as a reasonable valuation, based on all the intangibles that create value. 
• We assess your company’s financial health and whether you could take the calculated risk of waiting for a potentially better deal later. 
• We talk with you about your personal goals, including whether you’re able and willing to ride out a volatile market or prefer to exit the business soon.   

If we believe it’s a good time to sell your manufacturing business, we’ll prepare to take your company to market using a proven process that gets you in front of the right buyers, highlights your company’s unique value, and keeps the deal moving forward quickly (increasing the odds that the deal will close). We also negotiate competing offers and structure the deal in the most tax-efficient way, taking advantage of a favorable corporate tax environment.  

On the other hand, if we believe it might be prudent to wait to sell your manufacturing business, the NuVescor team will recommend measures you can take to improve the company’s value and set the stage for a stronger deal when the time is right.  

Now could very well be the perfect time to sell your manufacturing business. With NuVescor as your partner, you can make that decision with confidence. 

Learn more about our services that help owners sell their manufacturing business and complete a successful transaction. Or book a call with one of our manufacturing M&A specialists. 

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