Understanding Buyer Motivations and Strategies in M&A

Understanding Buyer Motivations and Strategies in M&A

Understanding Buyer Motivations and Strategies in M&A

An interview with Nick Good, Advisor with Rua Associates

July 18, 2024

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.

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

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

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

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

July 11, 2024

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. 

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

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

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

July 1, 2024

perfect time to sell-min

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. 

How M&A is Shaping the Plastic Parts and Injection Molding Industry

How M&A is Shaping the Plastic Parts and Injection Molding Industry

How M&A is Shaping the Plastic Parts and Injection Molding Industry

June 27, 2024

plastic injection molding blog

The plastic parts and injection molding industry shows a reflection of the broader manufacturing landscape. Notably, market consolidation is increasing. It’s a market where business owners have a unique opportunity to leverage these trends for strategic growth through M&A.

A Market of Contradictions

The performance of plastic part manufacturers is a tale of two cities. If you’re in the automotive field, for instance, it can be a challenging place right now. Many manufacturers had shifted their focus to parts for electric vehicles (EVs), but now they are increasingly reverting to producing parts for gas engine vehicles. Your performance very much depends on which product line you’re most invested in. Defense, on the other hand, is booming, and there’s plenty of opportunity for plastics manufacturers there.

This mixed bag creates a diverse buyer pool. Strategic players are seeking acquisitions for different reasons: expanding capacity, entering new markets, or acquiring specific capabilities like finishing expertise. For example, suppose a company has a lot of defense work but doesn’t have the right equipment or people. In that case, it’s currently easier to buy a company focused on, say, automotive, which has extra capacity than to ramp up existing resources. This kind of market landscape presents a golden opportunity for plastic parts manufacturers to align with buyers’ strategic goals.

 

A Surge in M&A Activity

Recent industry reports show M&A activity in the plastics industry rebounded during the second half of 2023 after a rather challenging start, and this activity seems to be continuing in 2024. Several critical factors are driving this consolidation wave:

  • Economies of Scale: Larger companies can use their buying power to secure better deals on materials and equipment, driving down production costs.
  • Technological Advancements: M&A is a strategic pathway to acquire expertise in cutting-edge technologies like automation, robotics, and additive manufacturing (3D printing). Instead of developing the latest automation and robotics technologies in-house, which could be time-consuming and expensive, a company can instead acquire a smaller company that already specializes in these areas.
  • Market Expansion: Companies are using M&A to gain access to new markets, product lines, and customer bases, enhancing their competitive edge.

 

The Future of the Industry: Continued Consolidation Through M&A

The current trend towards consolidation through M&A in the plastic parts and injection molding industry will continue. Here’s why:

  • Benefits of Diversification: Companies heavily reliant on a single niche or customer base are vulnerable to market fluctuations. Diversification through M&A allows companies to weather economic ups and downs.
  • Rise of Regional Powerhouses: Expect the emergence of larger, regional companies with a presence across the medical, aerospace, defense, and automotive sectors. This diversification will enable them to manage risk and offer their clients a wider range of capabilities.
  • The Fate of Smaller Players: Smaller, non-diversified companies may struggle to compete. However, those catering to niche markets with strong growth potential can still thrive independently.

And let’s not forget the upcoming wave of baby boomer retirements that will further drive M&A activity. Many plastics parts manufacturing businesses are owned by this generation, and the perceived volatility of the industry and economy can discourage some from passing the torch to the next generation. This creates a prime opportunity for M&A, making it a highly attractive and timely option. To stay ahead of the curve, it’s crucial to act now before others capitalize on this trend.

 

Beyond the Bottom Line: What Buyers Value

Turning to buyers, what are they looking for today? Beyond financial performance, there are two key factors that, in my experience, are significantly impacting a company’s value proposition in today’s market:

  • Inventory Management: Gone are the days of overflowing, untracked warehouses. Buyers seek partners who demonstrate efficient inventory control and clear justifications for holding specific materials. Streamlined operations are key.
  • Automation: Modernization is no longer optional. Companies lagging behind in automation will find themselves at a disadvantage. Integrating automation demonstrates a commitment to efficiency and future-proofing.

 

Strategic Advice for Business Owners

For business owners considering M&A, it is essential to identify your niche and focus on your strengths. Understanding your company’s unique value proposition—whether it’s expertise in automation, a strong customer base in a growing industry, or dominance in a particular niche market—is crucial for attracting the right buyer. Engaging a strong M&A advisor can help identify and connect you with strategic buyers aligned with your goals.

Conclusion

The plastic parts and injection molding industry has some unique opportunities for strategic growth, and now is the ideal time for business owners and potential buyers to leverage these trends. Companies that strategically position themselves and take a disciplined approach to preparing for M&A can enhance their value, and buyers have plenty of options for strategic acquisitions.

Engaging an experienced M&A advisor can help you navigate this complex landscape and connect you with strategic partners aligned with your goals. At NuVescor, we’ve had years of experience coping with market ups and downs and helping companies work through the challenges.

If you’re a mid-sized manufacturer seeking to sell your business or a buyer looking for a strategic acquisition, contact us to see how we can help you navigate the M&A process and achieve a successful outcome.

A Guide to Choosing the Right M&A Partner for Your Mid-Sized Business

A Guide to Choosing the Right M&A Partner for Your Mid-Sized Business

A Guide to Choosing the Right M&A Partner for Your Mid-Sized Business

June 5, 2024

A Guide to Choosing the Right M&A Partner for Your Mid-Sized Business
When considering selling or acquiring a business, you need experienced advisors. Three main players stand out: business brokers, investment banks, and industry-specific M&A firms. Each caters to distinct market segments and offers different levels of service. Recognizing these differences is crucial for selecting the right partner to guide you through the intricacies of your business transaction.

Understanding the M&A Advisor Landscape

Business Brokers

A business broker acts as a middleman, specifically focused on buying and selling smaller family-owned, sole proprietorship, or small partnership businesses. They handle many administrative tasks, connect buyers and sellers, and assist with deal negotiation and closing.
While cost-effective and offering a simpler transaction process, business brokers typically deal with smaller businesses, so their expertise might be too limited for highly specialized industries or complex transactions.

Investment Banks

On the other end of the spectrum lie investment banks. These powerhouses focus on large corporations with billion-dollar deals. Investment banks offer a comprehensive suite of services that extend far beyond mergers and acquisitions (M&A), encompassing a comprehensive suite of financial advisory services like capital raising, initial public offerings (IPOs), and risk management. This breadth of expertise, extensive resources, and global reach make them ideally suited for complex, high-value transactions.

Investment banks serve as strategic advisors for corporations on both ends of the spectrum – those seeking to sell (sell-side) and those eager to acquire (buy-side). Seasoned deal professionals with a detailed understanding of intricate financial mechanisms guide clients through complex transactions. For sellers, investment banks evaluate the worth of companies, pinpoint suitable buyers, create compelling marketing materials, and negotiate optimal terms. On the buy-side, these banks aid in target identification in line with strategic objectives, conduct thorough due diligence to assess risks, and structure acquisitions for maximum advantage. Their vast experience and access to global financial markets enable them to excel in high-value, intricate transactions.

However, these services come at a high cost. Investment banks typically charge significant fees, making them a less suitable option for smaller or mid-sized businesses operating in niche industries or with simpler transactions.

Industry-Specific M&A Firms

While business brokers cater to smaller businesses and investment banks dominate the large-cap world, a gap exists for mid-sized companies. Here’s where industry-specific M&A firms step in, offering a unique blend of specialized knowledge and M&A expertise.

Unlike general M&A firms, industry-specific firms focus on companies within a defined sector, like manufacturing (in the case of NuVescor) or technology. This deep understanding of the industry allows industry-specific M&A professionals to provide highly targeted services to mid-sized businesses that offer several advantages:

  • Identifying ideal buyers: Industry-specific M&A firms cultivate a network of qualified buyers actively seeking acquisitions within their niche. This targeted approach ensures a seller’s business is presented to potential buyers who genuinely understand its value proposition and are a strategic fit. For buyers, it’s a more efficient way to find target companies that meet your business goals.
  • Tailored value creation: Deep knowledge of industry trends and valuation metrics allows industry-specific M&A advisors to position businesses for maximum value by identifying and highlighting factors specific to your industry that enhance a company’s attractiveness to potential buyers. This also makes it easier for buyers to quickly evaluate potential target businesses.
  • Navigating industry-specific issues: Industry-specific M&A firms understand the regulatory environment, competitive landscape, and operational complexities unique to your industry. This allows them to anticipate potential challenges and develop effective strategies for the M&A process.

Industry-specific M&A firms also offer a comprehensive suite of services beyond simply connecting buyers and sellers. They act as strategic partners throughout the M&A process, providing guidance in key areas, including buy-side and sell-side representation, capital raising, and strategic consulting guidance to help you achieve your long-term goals with any transaction.

While they may have less experience handling very large or intricate deals than major investment banks, a. key advantage to working with an industry-specific M&A firm is their ability to tailor their approach to maximize value within your specific sector.

Choosing the Right Advisor

So, how do you choose the right M&A advisor for your specific needs? Your first step is to consider these key factors:

  • Transaction size: Business brokers are well-suited for smaller deals, while investment banks handle large, complex transactions. For mid-market deals, industry-specific M&A firms offer a tailored approach.
  • Industry expertise: If specialized knowledge is crucial, an industry-specific M&A firm can leverage its in-depth understanding of your sector.
  • Complexity: Investment banks might be the best choice for intricate, multi-layered transactions.
  • Cost: Business brokers generally have lower fees, while investment banks typically have the highest.

Ultimately, there’s no single perfect answer. Understanding the strengths and limitations of each advisor type empowers you to make an informed decision. The right advisor can ensure a smooth, successful M&A process that maximizes value and helps you achieve your goals.

NuVescor’s Niche: Industry-Specific Expertise for Mid-Market Success

NuVescor caters to the specific needs of small to mid-sized businesses in the manufacturing sector, with a revenue range of $5 million to $500 million. We offer a personalized approach that prioritizes strategic fit and value creation by focusing on:

  • Deeper market knowledge: Our team possesses a comprehensive understanding of the current trends, challenges, and opportunities specific to the manufacturing industry. This allows us to effectively value your business, identify qualified buyers, and negotiate strong deals within the manufacturing landscape.
  • Vetted buyer network: NuVescor has cultivated a network of pre-qualified buyers actively seeking acquisitions in the manufacturing space. This targeted approach ensures sellers are introduced to serious contenders who understand your industry’s value proposition, and buyers don’t waste time on companies that don’t fit their needs.
  • Collaborative approach: We believe in a transparent and collaborative partnership. Our team acts as an extension of yours, guiding you through each step of the M&A process with clear communication and a commitment to achieving your goals.
  • Strategic deal structuring: NuVescor goes beyond simply matching buyers and sellers. They work with you to structure the deal to optimize your outcome.
  • Focus on value creation: NuVescor doesn’t just sell businesses; we help sellers prepare their businesses and create value for a successful transition.
    The decision of who to partner with for your M&A transaction is crucial. NuVescor offers a compelling alternative to traditional business brokers and investment bankers, providing industry-specific expertise, a collaborative approach, and a tailored approach to deals for mid-sized manufacturing businesses.

Considering NuVescor?

If you’re a mid-sized manufacturer seeking to sell your business or a buyer looking for a strategic acquisition, contact us to see how we can help you navigate the M&A process and achieve a successful outcome.Book a Meeting with NuVescor today.