Manufacturing a hot industry for M&A
January 1, 2015
By Scott Bushkie, CBI, M&AMI
Conerstone Business Services, Inc.
As chair of the marketing committee for the International Business Brokers Association, I recently led an effort to launch a national quarterly market survey. Among the findings from our second quarter survey was a list of the hot industries leading the mergers and acquisitions market right now.
For main street businesses—that’s businesses with values of under $1 million—retail, service businesses, and restaurants topped the number of closed transactions. My company doesn’t do much work in the main street marketplace, but from talking with other regional brokers, we seem to be following the national trend here. This is a numbers game, of course. There are more retail businesses, bars and restaurants than other enterprises operating at this market size.
For businesses valued between $1 million and $2 million, manufacturing led the list at 47 percent of completed deals over the last three months, followed by healthcare (18 percent), and construction/engineering (12 percent).
In the lower middle market, for businesses valued between $2 million and $5 million, closings were more evenly distributed between wholesale distribution (29 percent), business services (21 percent), and construction/engineering (21 percent).
Businesses of $5 million in value or more followed the same trend, led by manufacturing at 23 percent and wholesale distribution at 15 percent.
I would say this national survey is representative to what we’ve seen in the regional marketplace.Right now we have several clients in the manufacturing, business services, and distribution markets hoping to close before year end.
Manufacturing in the Upper Midwest has definitely seen a significant uptick since 2009. There’s a lot of manufacturing companies in our region looking to grow. And since economic growth is so slow at the moment, one of the leading strategies to grow top and bottom line right now is growth through acquisition.
Of course we always keep an ear out for industries that are consolidating. When competitors are ramping up and growing through acquisition, other industry players are forced to grow.
Right now we have buyers with very strong balance sheets actively looking to grow, and sellers whose sales and balance sheets have returned to pre-recession numbers.The valuation gap has been reduced, allowing more transactions to get done.
Being in an industry that’s hot or consolidating typically means you’ll get a better value for your company. That’s because there are more buyers competing for these opportunities and/or because strategic players are getting more aggressive about executing growth strategies and going after market share.
I believe the activity will only get stronger after the election n November. I think if one party wins M&A will get even more robust, but I think either way once the election is complete, the decision makers, buyers and sellers will have better clarity on the next four years and that should help the M&A marketplace.
Scott Bushkie is the President of Cornerstone Business Services. To request a book (at no cost) with advice on the exit planning process contact Scott at (920) 436.9890 or sbushkie@cornerstone business.com. Copyright 2013.