How to Take Advantage of Investors’ Demand for Manufacturing Businesses

2014 marked an incredibly strong year for manufacturing M&A. The sector saw deal value more than double and a 40% jump in deal volume compared to the prior year. The number one destination for private equity investment, the sector inked two dozen mega-deals (those with value of +$1 billion) and activity remained robust into the end of the year even as concerns grew around the fall of energy prices.

Those who sold last year saw multiples of up to 13x, yet still, many CEOs remained on the sidelines. Already in 2015, one thing is clear, investor demand for healthy, growing companies has never been greater. Of all the deals initiated via the Axial investment solution, manufacturing stands out as the sector with the highest rate of investor interest. As competition increases among both buyers and investors in the sector, we find many CEOs asking one question: how can I take advantage of current market conditions?

“CEOs looking to retire in the next  5-7 years might be wise to take an early look at the market.”

For CEOs wondering whether now is the right time to bring their company to market and how to achieve the best outcome, we’ve identified some key considerations.

  1. Watch the retirement horizon years in advance. With many of the companies in question owned by baby boomers and the concept of the family-owned (and inherited) business on the decline, CEOs looking to retire in the next  5-7 years might be wise to take an early look at the market. With estimations calling for the sale of 70% of baby boomer-owned businesses over the next 10 to 15 years, beating the rush to market may be in a company’s favor if they are relatively prepared to sell.
  1. Keep your management team in saleable position. Companies with strong, self-sustaining management teams in place will be in the best position in a sale. It is critical to prove to buyers that your exit can be a seamless transition with little interruption of day-to-day operations. Particularly during the due diligence phase of a deal process where performance is expected to hold steady even while a CEO’s time and attention on the business may be replaced by his focus on the deal, buyers will not hesitate to adjust the multiple based on any changes in the performance of the business.
  1. Create a growth tailwind. Several trends unique to the manufacturing sector stand to lend a tailwind to businesses who are poised to take advantage. Buyers and investors will be keen to evaluate how businesses deal with reshoring initiatives, resource scarcity, globalization, and technological changes. Businesses with an eye toward aggressive growth and high quality are those that will see the most favorable valuations. As such, CEOs who can whittle down on non-core assets, expand into new and attractive customer markets and pursue smart acquisitions to move up and to the right, will be the golden children in buyers’ eyes.

There are many ways a CEO can pursue the best possible sale or investment outcome for his or her business. Manufacturing CEOs should look to take advantage this year with investor interest and M&A activity at an all time high.

Sam Jacobs is Senior Vice President at Axial ( a network connecting middle market CEOs to advice and capital.


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