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Is Your Manufacturing Acquisition Lender Giving You Bad Advice?

Is Your Manufacturing Acquisition Lender Giving You Bad Advice? - Accelerated MFG Brokers
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Many acquisition lenders have plenty of experience in business acquisitions, but do they have specific experience with manufacturing? The acquisition of a manufacturing company is entirely different from acquisitions of restaurants, retail, or service companies. It’s important that your acquisition lender is experienced or at least knowledgeable in the industry, or you may be receiving irrelevant advice!

We recently encountered a situation where an acquisition lender advised a buyer that he should not be paying above a 4x multiple for a business. After taking this position, this potential buyer quickly lost out to an acquirer that was better informed about current market conditions and appropriate multiples within the manufacturing sector. While the advised multiple may be true in other industries, it is entirely inappropriate advice for manufacturing.

According to the fourth quarter 2017 Market Pulse Report conducted by the IBBA and M&A Source, manufacturing businesses made up almost a quarter of all reported transactions in the lower middle market.

According to the same report, the median multiple paid in the lower middle market sector was 5.5. The advice to accept nothing above a 4 multiple in this industry is extremely misleading—any buyer would be hard-pressed to find a manufacturing company selling for less than 5!

Overall M&A statistics cover everything from retail franchises to advisory companies. Manufacturing is unique – make sure your acquisition lender is advising you based on the specific industry, otherwise you could blow up the deal trying to fit a square peg in a round hole. Make sure the information you base your offer on is both current and relevant to the sector you are acquiring in.

Want to learn more about manufacturing M&A statistics? The IBBA’s Market Pulse Report is a great place to start. Follow the link below to download the latest issue:

If you are interested in learning more about what we can do for you and your business, please call us at 908-387-1000 or visit our website, provide us with your confidential contact information, and we will get back to you.

About Frances Brunelle

Frances Brunelle is the founder of Accelerated Manufacturing Brokers, Inc., which specializes in the sale of lower middle-market manufacturing companies nationally. Fran and her team help to ensure the continuity of U.S. Manufacturing by transitioning ownership to the next generation of entrepreneurs. Recently Fran was named to 2020 Most Influential Women in Mid-Market M&A (Mergers & Acquisitions). Fran is also the host of the WAM (Women and Manufacturing) podcast, a Jacket Media production. Fran writes on topics that help manufacturing business owners prepare their companies for sale and navigate the sale process to ensure a positive financial result in support of their retirement.

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