October 19, 2021
With M&A activity in the manufacturing sector at a historic high in the first half of 2021, it’s important to look at some of the current and future worldwide trends in this industry that are driving activity and growth and affecting the M&A market.
An aging workforce fosters M&A as a major growth tactic. Family-owned manufacturing companies are facing challenges as succession planning is complicated by an aging workforce. The baby-boomer generation, especially for lower middle market and middle market manufacturing companies, is finding it increasingly more difficult to succession plan for their companies when they don’t have a family member to take over. Skilled labor and the younger generation’s interest in the manufacturing industry is waning. This is causing two major trends – one is the realization that aging business owners need to contemplate an exit of their business altogether, and the other is, for those owners who do not want to exit, they are looking to acquire companies in order to get the skilled labor that they need to continue to grow their company. Both trends have caused record M&A growth in the manufacturing industry, and we expect these trends to continue as the baby-boomer generation steps into retirement, and the world steps out of the economic uncertainty of the COVID-19 pandemic.
Shifting from B2B to B2C. In recent years, many manufacturers have opted to transition from a traditional business-to-business (B2B) model to a business-to-consumer (B2C) model. The B2C model boasts a number of appealing benefits, including increased profits (companies can get the MSRP as opposed to the wholesale prices for their products), faster time to market, brand control, price control, and better customer data. To effectively move from B2B to B2C, more and more manufacturing companies are improving and implementing e-commerce operations in order to deliver on fulfillment and tracking, secure payments, customer service management, and sales/marketing activity while creating a full look at all customer interactions. All in all, this shift from B2B to B2C enhances the modeling of the business as a whole, which creates a better, more attractive M&A candidate.
Big Data and the Internet of Things (IoT). A renewed interest in the Internet of Things (IoT) and an increased emphasis on predictive maintenance means big data is an even bigger trend than ever before. IoT, which entails the interconnection of unique devices within an existing internet infrastructure, has enabled manufacturers to make informed, strategic decisions using real-time data and achieve a wide variety of goals, including cost reduction, enhanced efficiency, improved safety, product innovation, and more. The ability to collect data from a multiplicity of sources, combined with increasingly powerful cloud computing capabilities, make it possible for manufacturers to slice and dice data in ways that provide them with a comprehensive understanding of their business — an absolute essential as they work to reevaluate their forecasting and planning models and develop a successful COVID-19 exit strategy. From a M&A perspective, this will create more accurate valuations if these manufacturing companies go to exit, and it will also emphasize the intellectual property nuances of any sale of these manufacturing companies.
Ted Motheral is Chair of the Walter Haverfield Business Services Group who focuses his practice on corporate transactions, mergers and acquisitions, private debt and equity financing. He can be reached at 216-928-2967 or at firstname.lastname@example.org.
*This article also appears in Crain’s Cleveland Business.