As we close out Q3 for M&A, the IBBA Market Pulse report is showing Manufacturing Companies Selling More Than Others and Most Sought After.
The results are in from Pepperdine’s Q3 2019 Market Pulse Report, and the findings are encouraging for manufacturing business owners who are selling or considering the sale of their companies.
Published quarterly, the report tracks merger and acquisition activity across the United States.
Manufacturing Leads Lower-Middle-Market Deal Activity
Manufacturing companies were the most sought-after businesses in the lower middle market and dominated Q3 closings in the $5 million to $50 million category.
Manufacturing and biotechnology businesses also ranked highly in the $2 million to $5 million market.
Manufacturing Valuation Multiples Continue to Rise
During Q3 2019, the national average for companies in the $5 million to $50 million category was 6.0 times earnings before interest, taxes, depreciation, and amortization (EBITDA). This increased from 5.4 times EBITDA during Q3 2018.
Smaller companies in the $2 million to $5 million category sold for an average of 4.4 times EBITDA, up from 4.0 times during the same period in 2018.
Understanding Sale-to-List Price Ratios
Companies in the $5 million to $50 million category sold for an average of 109% of their list price, an increase of nine percentage points over the previous year.
Companies in the $2 million to $5 million category sold for an average of 93% of their list price.
The sale-to-list price ratio compares the final sale price of a business with its original list or asking price. It indicates whether businesses are selling above, at, or below their listed prices.
A sale-to-list price ratio greater than 100% means the buyer paid more than the listed price. A ratio below 100% means the business sold for less than its listed price.
Who Is Buying Manufacturing Companies?
Just as EBITDA multiples vary according to company size, the most common type of buyer also differs by transaction value.
In the $2 million to $5 million category, first-time buyers dominated, acquiring 47% of the companies sold.
Businesses in the $5 million to $50 million category were acquired equally by existing companies and private equity firms. In this category, 75% of buyers came from more than 100 miles away.
Retirement Remains the Leading Reason for Selling
The leading reason lower-middle-market companies were sold during Q3 2019 was the retirement of the owner.
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