Why is buying a manufacturing company a good investment?
Manufacturing companies are among the most sought after acquisitions in the lower middle market. Manufacturing acquisitions provide a stronger return on investment than other sectors. During the COVID-19 crises, manufacturing companies remained opened and essential, while other industries were shut down. Manufacturing is critical to our economy. Here are a few stats from The National Association of Manufacturers:
- Manufacturers contribute $2.35 trillion to the U.S. economy
- For every dollar spent in manufacturing, another $1.81 is added to the economy
- For every one worker in manufacturing, four employees are hired elsewhere
- Most manufacturing firms are small – 75% of these firms employ less than 20 employees
- Over the past 28 years, U.S.-manufactured goods exports have quadrupled
- Manufacturing performs more than 62% of all the private-sector R&D in the nation, driving more innovation than any other sector
What should I look for in a manufacturing business?
Here are the Top 10 things to look for in a manufacturing acquisition. Another article you might find helpful is 101 questions to ask before buying a manufacturing Company.
Do you represent the buyer and the seller?
At Accelerated Manufacturing Broker, we represent the seller and our fiduciary responsibility is to our clients. That said, we also have a moral and legal obligation to treat buyers fairly, and this is something we take very seriously. We understand that the only way to have a long-term successful M&A practice is to behave honestly.
How is the sale price of a business derived?
There is always logic behind our pricing methodology. While a multiple of SDE (seller’s discretionary earnings) might be used for a very small manufacturing company, a multiple of adjusted EBITDA (earnings before interest, taxes, depreciation & amortization) is used for lower middle-market companies.
There are many other criteria affecting value to be taken into consideration. You may find this article on manufacturing business valuation helpful.
Why are some businesses listed with no sale price?
When there is an expected change in the business, it’s sometimes best to go to market without a price. Sales may be dramatically increasing due to new long term contracts, or the company may have developed a new industry disruptive technology. In these cases, not everyone will view the company the same way and sometimes beauty is in the eye of the beholder.
Why does your company ask for my resume and financial qualification?
Because we refuse to waste our time or our client’s time. We have a contractual obligation to vet buyers both professionally and financially. Our procedures are different than other firms.
Our clients are among the best manufacturing companies in the nation and they come to us to maintain confidentiality and weed out those who are not qualified. You’ll speed through the process faster if you provide the information we need to meet the contractual obligation we have to our client.
Isn’t it better to shop for a manufacturing company being sold by the owner?
The advantage of a company like Accelerated Manufacturing Brokers is that we’ve already vetted the selling company. The owners of our client companies are committed to selling. They are emotionally prepared for the process and have already provided detailed information which buyers have access to in a secure data room after they’ve demonstrated their qualifications.
With a for-sale-by-owner, you’ll spend dramatically more in due diligence and may never get to the finish line.
Will the current owners stay on for training and transition?
Accelerated clients understand that they will have to remain with an acquiring entity for training and transition. In most cases, they are willing to remain for one year.
If I’m a first-time buyer. What should I do to prepare?
We highly recommend having a conversation with a lender before you start to shop. They will help you understand what documentation you’ll be expected to provide, how long the transaction process takes, and provide you with a price range you should be looking at.
This allows you to shop with confidence and lets the broker know you’re serious. We work with lenders nationally who understand manufacturing. We’re happy to make a recommendation if you need one.
What else do I need to know about the sale process?
At Accelerated Manufacturing Brokers, most of our clients are family-run companies, and many are founder-led. They’ll be looking for evidence of your business acumen and character at every turn. They want to know that their business will be left in good hands. For them, this transaction is like selling one of their kids. Say what you mean and mean what you say and don’t go back on your word.