At the close of Q1, lower middle-market companies were trending at 107% of benchmark pricing which indicates M&A in 2021 is up.
Third-Party Data Confirms the Strength of Manufacturing M&A
I’ve previously written about how COVID-19 could affect the sale of manufacturing companies.
As we approached the end of the first quarter of 2021, I shared my perspective on the state of the market. You can read that article here.
Now, the Market Pulse Report from Pepperdine University provides third-party evidence about the state of manufacturing M&A in 2021.
The report covers all businesses—not just manufacturing companies, which typically rank among the strongest sectors in these reports.
Here are some interesting findings that manufacturers should understand.
Manufacturing and Engineering Lead Sale Activity
Manufacturing and engineering companies represented:
- 32% of sales in the $1 million to $2 million business category
- 48% of sales in the $2 million to $5 million business category
- 46% of sales in the $5 million to $50 million business category
This is great news for manufacturing business owners.
Respondents reported a shortage of quality businesses on the market. As a result, private equity firms are increasingly competing to acquire smaller companies.
Business Values and EBITDA Multiples Are Rising
At the close of the first quarter, lower-middle-market companies were trending at 107% of benchmark pricing, with larger companies commanding higher prices.
Across companies of all sizes and sectors, businesses sold for an average of 91% of benchmark pricing.
Lower-middle-market EBITDA multiples increased to 5.0 times earnings, compared with 4.3 times during the same quarter of 2020.
Remember, these figures include businesses from every sector. Manufacturing companies generally rank higher.
Who Is Buying Lower-Middle-Market Businesses?
In the $2 million to $5 million category, first-time buyers, serial entrepreneurs, and existing companies led acquisition activity.
For companies in the $5 million to $50 million category, private equity firms and strategic buyers completed the most acquisitions.
Most Buyers Are Coming From Outside the Local Market
In both categories, most buyers came from more than 100 miles away.
This has been a consistent trend in the sale of lower-middle-market manufacturing companies. It is also why manufacturing business owners should work with an M&A advisor who has a national audience.
Good News for Manufacturers Considering a Sale
These findings are encouraging for manufacturers who were concerned that the pandemic would negatively affect the value of their companies.
Another major concern we continue to hear from potential clients is whether they can complete a sale before proposed tax increases take effect.
The answer is yes.
You can learn more in our article, Can I Sell My Manufacturing Company Before the Tax Hikes?.