Buying A Manufacturing Business in 2017 - The 5 Hottest Sectors
The start of the New Year is traditionally the busiest for Manufacturing Mergers & Acquisitions. Potential buyers have vowed that THIS will be the year they acquire their way into entrepreneurship. Having done their homework, they’ve already determined that buying in the manufacturing sectors will likely provide the best return on investment, stable cash flows, and opportunity for growth. But those buying a manufacturing business in 2017 want to know what the hottest sectors are. The ones that perhaps have the opportunity to be exponentially scaled up. You’ve got questions, we’ve got answers!
Sectors that suffered during sequestration will likely boom under a Trump presidency.
Aerospace & Defense:
Aerospace and Defense-related companies will be two of the most sought after acquisitions in the next few years. As our nation’s military is rebuilt and modernized, companies that provide components for military aircraft, ships and defense systems will fair well. If you’re seeking to acquire a small company, in the $2-$15 million range, here are some key qualities to look for:
- Companies that are direct vendors with big industry players.
- Companies that are operating below 50% of their capacity, but have modern, updated and well cared for equipment. Look for a company that can double in size without a lot of capital expenditure.
- Companies with skilled staff that have 15-20 years left in the workforce.
Oil & Gas:
Oil & Gas will also be a big winner in 2017 and the next few years. Think beyond the obvious exploration and drilling when seeking an acquisition in this sector. Look for companies that provide components, measuring devices and other key functions to operate. Hydraulic Integrated Units, flow control measuring and safety devices will likely provide incredible growth opportunities.
Infrastructure related service and repair companies have the potential of trumping growth in all other manufacturing sectors. Every 4 years the American Society of Civil Engineers publishes a report card on America’s infrastructure. The grades have been declining for decades. Some of the areas with the lowest grades will likely see the highest percentage of growth in 2017 and beyond. Look for companies that provide equipment and services for the repair and replacement of water, waste, energy, roads, levees, and dams.
Heavy Equipment will be a huge winner in 2017 and beyond. Large capacity equipment manufacturing and repair is closely linked with oil & gas, infrastructure, and new construction. Growth in those industries will provide a rising tide for heavy equipment manufacturing and repair companies. The golden nugget to look for here are companies that have the ability to do very large capacity work. They are few and far between and provide a great opportunity for a roll-up.
Medical Instrument - Biomedical:
Medical Instrument and biomedical companies round out our hottest manufacturing sectors list. The greatest scale-up opportunities in this sector will be startups with new technologies. Often the founders are scientists who have developed technologies or instruments that will become the standard of care for a particular disease.
They’ve moved the technology successfully through the approval process, proved the concept, need, success rate and differentiation. But the real growth comes when they pass the baton to a people that specialize in business development. Because of the growth potential, this category will demand higher multiples than other sectors.
If you’re considering leaving corporate America for entrepreneurship, you’re not alone. In 2016 first-time individual buyers bought more lower middle-market manufacturing businesses than any other type of buyer. These savvy business executives found out that acquisition in the manufacturing sectors can not only replace their salary, but pay for the debt service needed to make the acquisition from the business cash flow, and exponentially change their retirement outlook with the growth of the business they acquire. It might be easier than you think, especially if you acquire one of the 5 hottest sectors.