Why working with the right advisor makes all the difference.
This is it: The biggest transaction of your career. You founded a manufacturing company, defied the odds, and created something that people want to buy. Now you just need to ensure that you don’t fumble the ball at the two-yard line.
After 25+ years in the advisory business, we’ve seen this scenario countless times. Getting sound guidance before a sale is invaluable, so we decided to set everything out here in print for you.
Let’s start by taking a look at the landscape you’ll be selling in.
Selling Your Manufacturing Business: Market Dynamics
Timing is obviously an important consideration for sellers. Currently, private equity buyers have record levels of cash ready and waiting for deployment. Strategics, meanwhile, are perpetually seeking to grow market share or expand their existing offerings via acquisition.
It’s not all tailwinds, however. Rising interest rates, workforce issues, and economic uncertainty have made buyers more discerning. They’re willing to spend capital but prefer to focus on deals that mitigate downside risk. For manufacturers, that means having good management, diversified clients, strong financials, recurring revenue, long-term contracts, and proprietary processes.
Demographics also loom large, as the retirement of the Baby Boomers is leading to an historic wealth transfer. This generation is especially well-represented in manufacturing company ownership and leadership. A march toward the exits in the next 5-10 years could create a supply distortion and give buyers more leverage. So, it may make sense to get ahead of the aging curve.
Right now, multiples remain attractive for manufacturing businesses with good attributes. Waiting another few years for market conditions to change is a gamble, as macro conditions could remain static or get worse. The same holds true for your company’s prospects.
Selling Your Manufacturing Business: How to Evaluate an Advisor
Given how high the stakes are when selling your business, it’s natural to seek outside counsel. Few manufacturing business owners have expertise in marketing and selling a business.
Finding the right advisor, however, is critical. This is a specialized industry which requires specialized knowledge. Getting this decision right can help ensure that you get the best price and navigate a smooth sales process.
Here are a few of the characteristics advisors should possess:
- Deep experience in manufacturing sales. While any advisor may have some grasp of deal mechanics, not all of them understand the nuances of the industry. Knowing how to value major equipment or IP and how to address environmental compliance issues are some examples of trade knowledge that a good advisor will possess. Make sure they have a track record of getting results in your specific industry or sector.
- Understanding valuations. You’ll be relying on your advisor to create a justifiable valuation based on things such as industry multiples, comps, and your firm’s strengths and weaknesses. This should be rooted in rigorous analysis. Too many advisors will offer absurdly aggressive numbers in a bid to win the listing, only to try and “talk you back down” later in the process. If the methodology doesn’t support a credible valuation, it’s all talk, and usually a waste of your time.
- A proprietary buyer network. This is crucial. Good advisors create their own buyer networks by fostering long-term relations with private equity and strategic buyers, family offices, and high net worth individuals with an interest in certain industries. Being able to tap into these networks often makes all the difference when it comes to getting a great valuation and relatively painless transaction.
- Discretion. A good advisor can market your company without disclosing information that can compromise your competitive position. They’ll have tools such as NDAs, blind marketing and controlled information disclosure. All of this will be tightly maintained even during complex due diligence processes.
- Structure expertise. Manufacturing sales sometimes have features such as equipment leases or real estate considerations that require expertise in certain deal structures. A good advisors knows how to navigate such issues while optimizing what matters to you, whether that’s post-closing obligations or proceeds.
Selling Your Manufacturing Business: A Few More Thoughts
Let’s take a moment to review a few things you can do to make your opportunity more compelling to buyers.
- Getting your financials in order, documenting your key processes, and lowering client concentration all make your business more attractive to buyers. You wouldn’t sell a home without staging it in the best light, nor should you sell a business without making improvements.
- Think about whether to include real estate or sell it separately. You may benefit from keeping it and leasing it back to the new owner, creating a consistent revenue stream. Each deal is highly variable, so this is something you need to decide for yourself with the help of an advisor.
- Don’t let your performance slip while the business is being sold. Complex manufacturing sales can take up to a year, and you’ll want to maintain performance all the way through. In addition to an M&A advisor, the right support team (transition attorney, wealth manager, CPA etc.) can also help things run smoothly.
Selling Your Manufacturing Business: The Proof is in the Pudding
Now that we’ve told you what to look for, let’s show you what the right advisor can do. In the last year, Sun Acquisitions has completed four major manufacturing business sales.
These include the sale of:
- A Chicago high pressure filter business to Navistar Global.
- A renowned bar supply manufacturer to North Park Group.
- A package steel systems manufacturer to TSS Acquisition.
- A product line machinery, services, and replacement parts business to a private investor.
All four sales represented what we do best: Using two-plus decades of experience to help manufacturing business owners exit on the best possible terms, with the fewest possible complications.
If you’re in their shoes, we urge you to reach out to us today for a free, no-commitment discussion of your next steps.
