Is Now a Good Time to Sell Your Manufacturing Business?

This article appeared in the Jul/Aug 2024 issue of MiMfg Magazine. Read the full issue and find past issues online.

After several years of robust mergers & acquisitions (M&A) activity, manufacturing company owners may be considering whether it’s a good time to sell. However, the decision isn’t straightforward. Understanding the current M&A market trends and evaluating personal circumstances are essential to make an informed choice.

Valuations Are Back to Earth

Business valuations have begun to descend from their peak levels, partly due to inflation and interest rates. Despite efforts to bring manufacturing back to the US, some companies are losing business to lower-cost overseas competitors. Inflation is driving up costs, and higher interest rates are making it expensive to finance capital expenditures, forcing companies to raise prices and risk losing customers. For instance, a $15 million plastics extruding company lost $4 million in business to a Chinese competitor, while a CNC machining and fabricating company saw its EBITDA (earnings before interest, taxes, depreciation and amortization) drop by two-thirds after a major customer switched suppliers. Here in Michigan, automakers are particularly affected by the current economic conditions, with higher interest rates and supply costs impacting profitability. These factors have reduced M&A activity, with PwC reporting a 30 percent drop in 2023 auto manufacturing deal volume and a 22 percent decrease in deal value compared to 2022.

Still, It Could Be a Good Time to Sell

Despite economic pressures affecting manufacturers’ business valuations, several positive catalysts could make it an ideal time to sell a manufacturing business:

• Private equity (PE) groups still have substantial capital to deploy
• Strategic acquirers have healthy balance sheets with cash for acquisitions, thanks to legislative efforts like the Inflation Reduction Act and leftover Paycheck Protection Program (PPP) loan proceeds.
• Geopolitical instability is encouraging reshoring or nearshoring, potentially offsetting cost-driven outsourcing and boosting valuations.
• Supply chain disruptions have decreased significantly, providing manufacturers with more options for obtaining raw materials at competitive prices.
• Technological advancements, including AI, offer manufacturers opportunities to improve efficiencies, making the business more appealing to buyers.

How Do You Know When the Time is Right?

Buyers are still actively acquiring quality manufacturers and completing deals with attractive multiples. However, deciding whether it’s the right time to sell depends on factors beyond buyer demand. To assess the timing, consider the following questions:

• Can you withstand a volatile market for the possibility of a better deal? Given the uncertainty, it’s crucial to evaluate your balance sheet and revenue and earnings forecasts to determine whether selling now or waiting is the best option.
• What is your desired timeframe for exiting the business? Your personal and professional goals are essential factors in deciding to sell. Consider whether you’re willing to continue running the business while waiting for economic conditions to improve.

In the active M&A market, you may receive an unsolicited offer to buy your manufacturing business. While tempting, without competing offers, you won’t know if the proposed deal is the best possible.

Running a competitive deal process allows you to gather information and gain leverage to optimize the deal price and terms.

How the Right Investment Banker Can Help

Selling your manufacturing business is a significant decision. It’s not just a transaction; it’s about securing your financial future and your legacy.

Having an experienced partner to guide you through the process is crucial. Choosing an investment banking partner with experience in the manufacturing sector is a critical first step in achieving the desired outcome when you decide it’s the right time to sell.

About the Author

Randy Rua is president of NuVescor, a leading provider of mergers and acquisitions services for manufacturers. He can be reached at rrua@nuvescor.com.

NuVescor is an MMA Premium Associate Member and has been an MMA member company since May 2024. Visit online: nuvescor.com.