Horizon M&A Advisors

Manufacturing Businesses in Demand: Why It Is Time to Sell

Introduction

In the last few years, mergers and acquisitions (M&A) activity in the manufacturing sector has experienced a dramatic increase. This growth is more than a passing phase but reflects fundamental changes within the industry. For owners of manufacturing businesses, this could be the ideal moment to sell. Knowing the prevailing trends in M&A can allow you to make an informed choice. In this blog, we examine why manufacturing businesses are high on demand, and why maybe it is just the right time to sell now.

Recent Growth in Manufacturing M&A Activity

Manufacturing is now an M&A hotspot. There has been a noticeable surge in transactions in the past few years. In a report from PwC, global manufacturing M&A activity grew by 15% over the last year. The various reasons for such growth include new market realities, companies adapting to such changes, and technological advances.

Fact: Deal size in manufacturing, on average, hit a record high of $500 million in 2023, marking an all-time valuation of manufacturing businesses.

What’s Driving Demand?

1. Post-Pandemic Reshoring

One of the main reasons for the increased M&A activity is the post-pandemic reshoring trend. The COVID-19 pandemic revealed weaknesses in global supply chains, and companies began to reshore their manufacturing operations back to their home countries. This trend has created a surge in demand for domestic manufacturing businesses as companies look to increase the resilience of their supply chains.

Manufacturing Businesses in Demand: Why It Is Time to Sell

2. Buyer Interest in Automation and Operational Efficiency

Another factor is increasing interest in automation and operational efficiency. Buyers have a keen interest in manufacturing businesses embracing Industry 4.0 technologies, such as IoT, AI, and robotics. These not only enhance productivity but also help reduce operational costs, making these businesses highly sought after acquisition candidates.

3. Economic conditions are favorable

Current economic conditions also reflect the situation. Low interest rates and available capital created an environment whereby buyers could easily finance the acquisition process. Moreover, investor confidence was improved with the economic recovery, and M&A activity, in general, rose within all sectors, manufacturing included.

4. Strategic consolidation

More and more companies are seeking to consolidate their market position by buying out competitors or complementary businesses. Strategic consolidation, in this manner, allows companies to realize economies of scale, extend their product offerings, and gain a competitive edge.

Fact: Manufacturing represented around 20% of all M&A deals in North America in 2024, an increasing sector in the broader economy.

5. More Emphasis on Sustainability

Sustainability has emerged as a significant criterion in the context of business operation, and no exception is made in this regard to manufacturing. Firms are constantly trying to reduce their carbon footprint while adopting greener practices.

Therefore, M&A activity is highly driven by the concern for sustainability due to larger firms’ attempts to acquire businesses which have already developed eco-friendly processes. Companies have an interest in their products due to the demand of interested customers who want companies with great ESG credentials to enhance corporate image and comply with regulatory requirements.

6. Government Incentives and Policy Support

Government policies and incentives also stimulate M&A activity. Several governments provide tax breaks, subsidies, and grants for domestic manufacturing by collaborating with and fostering indigenous innovation in technology. This motive increases the attractiveness of these manufacturing businesses towards their buyers, as they can promote more efficient operation capabilities as well as financial support.

7. Globalization and Market Expansion

Despite the reshoring trend, globalization continues to influence the manufacturing sector. Companies are looking to expand their market reach by acquiring businesses in different geographic regions. This global expansion strategy helps them tap into new customer bases, diversify their revenue streams, and reduce dependency on any single market.

8. Talent Acquisition and Retention

The manufacturing industry is experiencing a shortage of talent, especially in areas like engineering, robotics, and data analytics. A business with a skilled workforce can be an advantage in a competitive market. Buyers are attracted to companies with strong talent pools and effective employee retention strategies, which help them overcome the challenges of talent scarcity.

Case Study: Successful Sale of a Manufacturing Business

Let us relate to a real-life scenario where Horizon M&A Advisors helped successfully sell a manufacturing business.

  • The Scenario
    A mid-sized manufacturer of custom automotive parts was approaching Horizon M&A Advisors. The owner, close to retiring, sought an easy transition to the next generation and a high valuation of the business.
  • The Approach
    Horizon did a thorough valuation of the business, including its strong financial performance, proprietary technology, and established customer base. They also identified potential buyers who were looking to expand their product lines and enter new markets.
  • The Outcome
    Horizon had to negotiate a series of agreements before finally helping the company sell to a larger industry player. The deal would not only bring a good exit for the owner but also ensure that the business continued to grow under new ownership.

Preparing Your Manufacturing Business for Sale

1. Conduct a Thorough Valuation

Before you sell your manufacturing business, you need to do a proper valuation. This will include looking at your financial performance, market position, and growth potential. M&A advisors can guide you on what are the most important value drivers and what are the areas for improvement.

2. Optimize Operations

Efficient operations make businesses attractive to buyers. This means streamlining your processes, adopting new technologies, and optimizing your supply chain can make your business more appealing. Consider automation and digital transformation as a step toward increasing productivity and reducing costs.

3. Improve Financial Performance

A strong financial record is a prerequisite for an attractive buyer. Ensure that your financial statements are accurate and current. Concentrate on profitability improvement, management of debt, and revenue growth consistency.

4. Strong Management Team

A capable management team can add value to your business. Buyers look for businesses with solid leadership that can drive growth and manage operations effectively. Develop a succession plan to ensure the smooth transition of leadership.

5. Strengthen Customer Relationships

Long-term customer relationships are a valuable asset. Demonstrate your business’s ability to maintain and grow its customer base. Highlight any exclusive contracts, repeat business, and customer satisfaction metrics to potential buyers.

6. Address Legal and Regulatory Compliance

Ensure that your business complies with all legal and regulatory requirements. This includes environmental regulations, health and safety standards, and labor laws. Addressing any compliance issues beforehand can prevent delays in the sale process.

Conclusion

Current M&A Landscape Golden opportunity for the owner of the manufacturing business- driven demand by factors like reshoring after pandemics, advancement of technology, and the state of economics, pushing the valuation skyward. Sell the manufacturing business and benefit now with this scenario that seems most lucrative for an entrepreneur like you, now.

Now is the right time for selling your manufacturing business. Contact Horizon M&A Advisors to discuss how we can assist you in navigating this process and maximizing its outcome for your business.

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