This particular report focuses solely on U.S. Companies in the manufacturing and distribution sectors, that have been recently sold or involved in an M&A transaction. Each quarter the IBBA and M&A Source present the Market Pulse Survey with the support of Wharton Private Capital Markets Project and Wharton School of Business & Management. The report measures the current market conditions for businesses sold within the United States.
June 28, 2017 Tinton Falls, NJ
Q1 of 2017 had some interesting insights for the manufacturing and distribution sectors that every business owner should be aware of. The report revealed 4 things you need to know about the current M & A Market.
- Manufacturing and Distribution Companies Sold More Than Any Other Type of Business
During the first quarter of 2017 more manufacturing and supply chain companies were sold in the US than any other type of business within the $1-$5 million AND the $5-$50 million revenue category.
- Multiples Are Trending Upward & Sellers Are Getting Close to Their Asking Prices
For lower middle market transactions multiples for Q1 ranged from 4.75-5.75X EBITDA. Businesses with revenues between $2-$50 million sold on average at 92% of their asking price.
For businesses with revenues between $2-$5 million, Sellers on average received 81% cash at closing, with 10% of the deal being financed by the Seller and the remaining balance held in an earn-out. Businesses with revenues between $5-$50 million sold with 76% cash at closing, 14% Seller financing and the balance held in an earn-out. While not all of the transactions consummated in this report involved an earn-out or seller financing, the vast majority did. Does your business qualify for M&A?
- Who Is Buying and Where Do They Come from?
For deals with companies in manufacturing and distribution that were under $5 million, 42% are first-time buyers and 40% are repeat owners adding to their portfolio. At Business Acquisition Experts, Inc., we found this percentage of first time buyers to be substantially higher. In fact, this is the largest category of buyer for us in all transactions between $2-$15 million. Strategic buyer’s comprised of 18% of deal flow. It’s been noted that most strategic buyer’s have a few of the same common core goals for acquisitions:
- They are looking for accretive acquisitions
- Industry Roll-ups or Consolidations
- Faster growth through acquisition
- Access to market share in a certain geography or strategic location
The list of synergies can go on and on for why it makes sense for other corporations to pursue an M&A strategy. These are some of the top reasons Why we see deals being consummated by strategic acquirers in the manufacturing and distribution sector. Strategic Buyer’s typically pay much higher premiums than other buyer’s in the marketplace. Want to learn how to sell to a strategic buyer?
For deals between $5-$50 million, the Market Pulse report showed 39% were sold to private equity firms and 30% to existing companies seeking expansion through acquisition.
For lower middle market deals, 41% of buyers come from more than 100 miles and an additional 39% come from more than 50, but less than 100 miles away. This statistic should be of paramount concern to those business owners seeking to engage an M&A or business brokerage firm. The company you hire needs to have more than a local audience to successfully sell your manufacturing or distribution company.
- How Long Does It Take to Sell a Business?
For companies with revenues between $1-$50 million, the average time to close was 9 months with 4 months from acceptance of the Letter of Intent to closing. At Business Acquisition Experts, Inc., we’re experiencing a slightly lower average.
Mergers & Acquisition professionals dealing in lower middle market businesses generally believe that we are currently in a Seller’s Market. Manufacturing/Distribution continues to dominate and are the most sought after businesses in the lower middle market. Clearly the current M & A Market is good news for retiring business owners.
While the results above may be exciting for owners seeking to retire or exit for various other reasons, it is clear that one must have a comprehensive exit strategy in place to take advantage of the current “seller’s market”. A recent article in Forbes Magazine noted that 73% of business owners do not have a succession plan or exit strategy in place.
BAE can assist owners in developing an exit strategy structured around personal and corporate goals to ensure the desired outcome is achieved at the time of transition. Minimized tax burden, preservation of the company founders’ legacy, reduced exit time, financial success, and the ability to act quickly in the event of unforeseen circumstances are all benefits of having an exit strategy in place. The biggest advantage any business owner has on their side is time. Allocating time to correctly prepare a business for sale can be the difference of millions of dollars….or whether it sells at all. Don’t know where to start? Speak to a professional for Free.
Whether planning to depart in 5 months or 5 years, it is important to start the process now and be properly prepared. Failing to plan is planning to fail, schedule an appointment with an M&A professional to start the process that will maximize success and ensure desired outcomes.