M&A Market 2015 – Hungry for Manufacturers

January 28, 2015|Ann Hanna

The M&A market continues to be starved for good companies going in to 2015. Activity remains very strong as buyers have cash available and growing confidence in the economy. The current market appears very stable and we expect favorable conditions to continue at least through the end of this year and into 2016.

The manufacturing industry is among the most desirable segments to invest in, given its traditionally high asset base, scalability and overall profitability. The industry is seeing purchase multiples higher than any time in recent history:

Purchase multiples* in manufacturing: 3rd quarter 2014


  

* Calculated by dividing Total Enterprise Value by EBITDA (Earnings Before Interest, Taxes, Depreciation & Amortization)

What’s behind this trend?

What is driving buyers in to the market, other than too much cash? Buyers we work with are purchasing for a variety of reasons.

  • Expanding capabilities can add to existing strengths and expand distribution channels. This strategy may include expanding a product line or adding a complementary product line.
  • The ability to add capacity, especially if that additional capacity is in a location which can reduce transportation costs or service customers better, is another driver.
  • Often, access to technology and intellectual property is attractive to a buyer.
  • Motivation for many recent mergers has been acquiring a competitor or performing a “roll up” (combining multiple companies in the same market) in a particular industry.
  • Financial investment and cash flow is the motivating factor behind private equity activity.
  • Finally, we are seeing more companies seeking acquisitions today because they are looking for a good trained employee base. This driver has become more prevalent recently as a quality, skilled workforce has been harder to find.

Other good news

Schenck’s M&A team has marketed multiple manufacturing companies over the the last year and we have several positive trends to report:

  • Multiple buyers – a full process has been generating 4-20 buyers per company with a good mix of both private equity and strategic acquirers.
  • Strategic buyers – we are seeing more strategic buyers (corporate buyers looking for synergies with their existing businesses) step forward and become acquisitive. We are also seeing strategic buyers win auctions because they are valuing the synergies between companies. This is generally driving pricing upwards.
  • Bankers – Banks continue to be aggressive and anxious to lend money. They are still disciplined in diligence and covenant requirements, but are starting to show more creativity in structuring debt.
  • Size is less important – Quality businesses are generating interest even if they are not at the “size” traditionally desired. Buyers are reaching down for smaller deals, if they are well-run organizations.
  • Quality premiums – Businesses with above average financial performance and strong management teams are selling at good premiums. GF Data reports that businesses with better financial performance have traded at a 22 percent premium to other sellers. GF Data defines better financial performers as businesses with trailing twelve month EBITDA margins and revenue growth rates both above 10 percent, or one above 12 percent and the other at least 8 percent.

If you are thinking of buying or selling your manufacturing company in the next several years, now is the time to get started. Our Schenck M&A Solutions team can help you to understand your specific options and how you fit in this market. Contact Ann Hanna at 414-465-5537 or ann.hanna@schencksc.com to learn more.


Ann Hanna, Managing Director of Schenck M&A Solutions, has more than twenty years of business management experience. She has led the sale and acquisition of many small and medium sized businesses, as well as multiple new corporate start-ups. She is also a licensed investment banker and real estate broker. 

Securities offered through Burch & Company, Inc., member FINRA / SiPC. Burch & Company and Schenck M&A Solutions are not affiliated entities. Ann Hanna of Schenck M&A Solutions is a registered investment banking representative with Burch & Company.