Five traits to look for in a manufacturing acquisition if you intend to double its size in the next five to ten years.
5 Traits To A Manufacturing Acquisition That Can Double In Size
In a recent conversation with a Wall Street finance professional seeking a manufacturing acquisition, we discussed what to look for when buying a manufacturing company with the goal of doubling its size in the next 5-10 years. He was considering a move from corporate America into manufacturing entrepreneurship, inspired by a neighbor who had already doubled the size of the manufacturing company he purchased in just a few short years. He wanted to know how often we come across "diamonds in the rough." I told him: "Way more often than you might think."
1. An Outdated or Underperforming Website
If a manufacturer is retiring and is in their late 60s or early 70s, technology has often left them in the dust. They may not understand the importance and value of an up-to-date website. They may not have one, or they may have one that hasn't been updated in ages. They may not have an online product quoting or ordering mechanism. Simple changes can make a manufacturing company more "visible" to potential customers and, therefore, increase sales.
2. Little or No Active Marketing
In addition to having an up-to-date website, many older manufacturing business owners do Nothing to market their companies and products. If their customer base is strong and they've got the staff in place to scale up, tweaking this one factor can exponentially increase sales.
3. Untapped Operational and Strategic Improvements
Oftentimes, retiring manufacturers built their businesses organically, from scratch. They don't have an MBA, and they've built their businesses to the level that their education and stamina will allow, but no further. Looking at a company that already has a great customer base and decent cash flow through the eyes of an all-star business executive, buyers can see opportunity that the Seller missed. It could be putting best practices in place on both the manufacturing and corporate sides of the business. Many owners work in the business, but they rarely work ON the business. Attention to best practices and strategy can sometimes bring growth without much effort.
4. Opportunities to Modernize Design and Production
If the Seller is still drawing parts on a drafting table, the old-fashioned way, there's an opportunity to improve. Using modern design software can save hours and have the plant running much more efficiently. Likewise, Sellers who are close to retirement may have been reluctant to move from manual to CNC equipment. Changes that improve the manufacturing process will add to the bottom line over time.
5. Significant Unused Production Capacity
Many aging business owners will begin to scale back and not push so hard for sales as they approach retirement. Buyers should look at situations where sales can grow 30% or more without adding people, equipment, or additional facilities. We have some manufacturing companies on the market that could literally double capacity without adding people, equipment, or real estate. How many businesses can offer that?
The key here is not to look for perfection when shopping for a manufacturing acquisition. If they're doing everything right, there might be little room for growth. Look for niche products and industries where the owner is NOT doing the appropriate marketing or whose systems need modernization. Some of these changes can be completed relatively inexpensively with exponential rewards. We've seen some companies go from a million in sales to over $10 million in just 2 short years.
Conclusion: Look for Growth Potential, Not Perfection
The difference was that the new guy at the helm knew much more about how to grow and scale a business. Do you have what it takes to double the size of a manufacturing acquisition? Click here to view available businesses and start your search. Have you done it? Did you use the methods listed above? Share your success story and comment.