If you’re a potential buyer or a seller in the manufacturing sector, it’s time to prepare for action.
After several years of sluggishness and economic uncertainty, we’re beginning to see the distinctive signs of growing intensity in mergers and acquisitions. Lower-middle market M&A activity in the U.S. has increased at a steady pace throughout 2013, and 2014 also started off strong.
While indicators of growth are plentiful across multiple industries, manufacturing is seeing particularly strong transaction activity. In the second half of 2013, manufacturing led the list of M&A deals ranked by dollar volume of transactions, according to the Alliance of Merger & Acquisition Advisors (AM&AA) bi-annual Deal Stats Transaction Survey. The industry also topped the charts over the same period in terms of number of deals, boasting more than double the number of transactions involving any other industry, including second-ranked information industry.
Major Indiana Deals
The last 18 months have seen the announcement of several major transactions involving manufacturing companies in Indiana, including:
- The June acquisition of TRUMPF Medical by Hill-Rom, located in Batesville, Ind., for approximately $250 million
- The April announcement of Indiana-based medical device manufacturer Zimmer Holdings’ intention to acquire local competitor Biomet for $13.35 billion
- Last year’s $150-million acquisition by Tyco of Exacq Technologies, Inc., a Fishers, Ind.-based company
What’s Driving M&A Activity?
A number of factors are driving this intensification of M&A activity, including an abundance of private equity funding and a backlog of business owners who have been delaying a sale until the time was right. Judging from the many signs we’re seeing, that time may have come.
PE funds (counting those sized up to $1 billion) raised over $30 billion in 2013, a significant increase over 2012 levels, according to presenters at a recent Indianapolis M&A conference sponsored by law firm Faegre Baker Daniels. In Q1 2014, the PE funds in the sample reported raising nearly $10 billion of capital. With this level of funding available to implement transactions, 2014 promises to be a very active year for M&A.
On the seller side, baby boomers who had aborted their plans to exit the market during the downturn now are back in the market. They have been biding their time, waiting for valuation multiples to improve before seriously investigating their options for selling. Now, valuation multiples are rebounding—up above 5x in manufacturing, according to the AM&AA survey. As a result, sellers are starting to line up, willing to make a deal.
On the buyer side, many business owners are ready to see real growth in their companies, and they are taking advantage of ready investment capital.
The Time Is Now
The upshot of these trends is that the moment has come. For owners who have been waiting for the right moment to transition out of the business, it’s time to get your house in order to attract the right buyer and maximize the value you see from your business. And if you’ve been considering expanding through merger or acquisition, it’s time to get off the sidelines and start looking at prime targets.