The #1 Mistake Made By Manufacturing M&A Firms
The #1 mistake made by Manufacturing M&A Firms is also the #1 reason you shouldn’t hire them. Read to the end to find out why. They are ignoring a major trend in the acquisition of manufacturing companies. This #1 mistake means that some M&A firms are totally ignoring a category of buyer who is making more acquisitions in the current market than any other type of buyer. Their marketing is never reaching a segment of the population that is highly qualified both technically and financially to buy manufacturing businesses. The negative impact this can have on your retirement cannot be understated.
To understand the depth of the problem, you need to really understand what’s happening in the marketplace. You need to understand who is buying manufacturing companies within certain price ranges. You also need to ensure that any M&A professional you’re considering hiring successfully reaches this category of buyer and sells to them on a regular basis.
How Large M&A Firms Market Manufacturing Companies
Many larger M&A firms do not advertise the availability of the manufacturing businesses they’re selling. Instead they research the likely strategic buyers and private equities that would be good candidates to make the acquisition. They contact these companies directly to fire interest in the acquisition. After narrowing the field from perhaps 100-200 companies down to a few dozen candidates, they have them submit offers at the same time. In many cases they have never advertised the asking price. They reason that by not advertising a price, you may get substantially more than your asking price.
The above described methods of identifying probable acquisition candidates is appropriate and what every M&A professional should be doing. But if the broker is doing ONLY that, they are doing their client a huge disservice by ignoring the category of buyer that is acquiring more manufacturing companies in the current market than any other type of buyer.
Who Is Buying Manufacturing Companies Between $1-$5 Million Today?
We all know about the “Silver Tsunami,” baby boomers that are retiring in record numbers. Here’s what you may not know. The younger baby boomers, in their early 50’s are acquiring manufacturing businesses in record numbers. The typical profile is someone who has perhaps worked in management for a Fortune 500 company for several years. They know what makes business work and how to exponentially grow a business, and they’re tired of doing it for other people. They typically have ample finances, good credit and serious management skills. They make manufacturing acquisitions with the idea of growing the company for 10-15 years. They will then sell the company as their own parachute into retirement.
Recent national studies show that these younger baby boomers are acquiring more manufacturing companies than private equities or larger companies in the $1-$5 million price range. Accelerated Manufacturing Brokers, Inc. beat the national average by more than 50% in the first 2 quarters of 2016 for companies sold to this category of buyer.
The Typical M&A Firm Is Ignoring This Buyer Segment
The #1 mistake made by manufacturing M&A firms is that they are completely ignoring this important buyer segment. If these firms are only reaching out to established businesses and private equities, they are probably leaving money on the table. If you attend one of their Seller seminars, they’ll probably tell you all their success stories of businesses that sold for insanely high multiples. Every broker that has been in the business for any length of time has those stories. It’s more a product of the quality of the business being sold than the quality of the marketing. If you have a good business for sale, more quality buyers will be interested, at higher multiples. It’s that simple.
Confidentiality Can Be Maintained While Your Business Is Properly Promoted
The other argument these large M&A firms will make for their method is one of confidentiality. They’ll tell you that by not advertising your business and only opening the process to those they contact, confidentiality is better maintained. We disagree. We believe that you can and should utilize both methods. The trick is to market the business to all categories of potential buyers without disclosing the name or location until buyers have been fully vetted. Utilizing highly targeted methods and broader nets simultaneously has allowed Accelerated Manufacturing Brokers, Inc. to also beat the national average for the length of time manufacturing companies remain on the market before selling.
Before you sign up with any M&A firm, ask if they are making this deadly mistake. Make sure they’ve been successful selling to the largest category of manufacturing business buyer that currently exists.