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Determining the Right Time to Sell a Manufacturing Company
According to Investopedia, approximately 10,000 Baby Boomers are retiring each day. Many of them are founders of manufacturing companies started in the 70's, 80's, or 90's. Those founders are ready to retire, and many are considering selling their manufacturing companies.
Others have grown a manufacturing operation over the past decade and are ready to sell to take on a new challenge.
Selling a manufacturing company requires consideration of several factors, including automation-readiness.
Tax legislation improves manufacturing acquisition frequency and asking prices
Tax legislation has created favorable conditions for selling manufacturing companies. IndustryWeek reported the Tax Cuts and Jobs Act of 2017 allowed corporations to bring money that had been stuck overseas back into the U.S.
The corporate tax rate was lowered from 35 percent to 21 percent. These two factors combined resulted in more liquidity for businesses, which has made acquisitions more feasible. With more buyers, the manufacturing acquisition market has become more competitive; sellers are increasing asking prices.
Most manufacturing enterprise buyers need financing to purchase a business; it is important to consider the current interest rates on business loans. Interest rates are low; affordable financing makes buying a manufacturing company more feasible for more buyers.
The condition of a manufacturing company affects value
The condition of a manufacturing business will affect its value. First and foremost, thanks to the rapid technological advancements of Industry 4.0, Industrial Internet of Things (IIoT), and big data (enhancing real-time decision-making and predictive analytics), manufacturing is changing beyond simple production.
According to Forbes, a growing number of companies are transitioning to smart factories where sensors collect data about the production process and transmit it to the cloud for analysis. Cloud computing is utilized for analyzing the production process, as well as to implement robotic and complex automation solutions.
Augmented Reality (AR) and Artificial Intelligence (AI) permits today's manufacturers to create special environments where they can test changes and new ideas before doing so in the physical world. These digital twins collect data about the equipment, making predictive maintenance easier than ever before and contributing to the longevity and productivity of machinery, ensuring Overall Equipment Effectiveness (OEE).
A buyer looking to purchase a manufacturing company will consider how much advanced technology is already implemented.
Outdated production methods will require a prospective buyer to calculate how much of an investment will be needed to bring the manufacturing facility up to date.
Another consideration for buyers is whether current staff is trained in new technologies - and if not, how much it will cost to bring them up to speed. Clearly, the more investments needed to contemporize a manufacturing plant, the lower the price offered.
Buyers want to know the average age of the workforce. If employees are reaching retirement age and there is no next generation training program implemented, that too will impact the price.
Because manufacturing is often a complex operation, transitioning a company to a new owner can be a lengthy and stressful process. Navigating all of the complexities of the deal, while simultaneously running smooth plant operations, is essential without jeopardizing profitability. Good health matters. As a manufacturing owner, no one knows the company as well as the own/founder.
PwC advises manufacturers to include at least one supportive transition advisor throughout the process. This ensures expertise where needed, while retaining the energy to focus on core manufacturing operations and responsibilities.
Ensure favorable conditions
It can be an emotionally and professionally difficult process to sell the manufacturing company an owner/founder worked so hard to build. Ensuring favorable conditions before deciding to sell is essential.
Manufacturers looking to sell must examine favorable economic conditions, get the company in good shape including automation-readiness, and have the energy and focus to be actively involved in the transition. These steps enhance the likelihood of finding a buyer willing to pay the asking price.
Frances Brunelle is the founder of
Accelerated Manufacturing Brokers, Inc., which specializes in the sale of lower middle market manufacturing companies nationally. Fran and her team help to ensure the continuity of U.S. Manufacturing by transitioning ownership to the next generation of entrepreneur. Fran writes on topics that help manufacturing business owners prepare their companies for sale and navigate the sale process to ensure a positive financial result in support of their retirement.
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