If you’re contemplating selling your manufacturing business in the upcoming year, you’re in an advantageous position to strike a lucrative deal. Manufacturing remains a cornerstone of the American economy, contributing approximately 11.39% to the GDP and employing over 8.50% of the workforce. With a growing consumer preference for high-quality, American-made products, buyers recognize that a well-managed company with a strong product line has substantial potential for long-term success.
Here’s why buyers are particularly interested in manufacturing businesses.
Lower Entry Costs for Market Penetration or Expansion
One of the primary reasons buyers are drawn to manufacturing is the relatively lower entry costs associated with acquiring an established business. Starting a manufacturing company from scratch requires significant capital investment in space, equipment, inventory storage, and workforce recruitment, which poses a substantial barrier to entry. By acquiring an existing company, buyers can bypass these initial challenges and leverage the existing infrastructure to expand their operations more cost-effectively.
Potential for Rapid Profitability Through Optimization
Buyers are often on the lookout for businesses they can quickly turn around or optimize for greater profitability. Even if your manufacturing business requires some improvements, it remains an attractive prospect. Buyers seek opportunities to achieve economies of scale by consolidating functions such as storage and office administration. They are also keen on investing in technology or marketing strategies that can rapidly boost revenue. Additionally, they focus on enhancing operational efficiency to increase profitability, making even fixer-upper businesses valuable targets.
Vertical Integration and Supply Chain Control
Another compelling reason buyers pursue manufacturing companies is the opportunity for vertical integration. By acquiring component manufacturers, buyers can take control of more of the supply chain, reducing dependency on external vendors. This strategy allows them to eliminate markups and better manage costs for essential components, ensuring adherence to quality standards and specifications. Owning more of the supply chain enhances overall operational efficiency and profitability.
Mitigating Risks from National Policy Shifts
Changes in national policies, such as tariffs and trade agreements, can drive investors to seek U.S.-based manufacturers as a hedge against rising costs and supply chain disruptions. Companies that manufacture components for larger products become prime targets for acquisition by businesses looking to safeguard their operations from international trade uncertainties.
Retirement of Baby Boomer Founders
According to the National Association of Manufacturers, around 90 percent of manufacturing businesses are run by baby boomer founders who are nearing retirement. With the average age of a family-owned manufacturing company CEO at 52 years (as of 2021), many of these owners are considering exit strategies. Only 30% of these businesses transition to a second generation, and a mere 12% make it to a third. Savvy buyers recognize that these owners might prefer selling their business rather than investing additional resources and energy for the long term. They understand the intrinsic value of these legacy companies and the critical role they play in their local communities.
Positioning for a Profitable Sale
Given these factors, manufacturing business owners are well-positioned to negotiate profitable deals. If you’re considering selling your manufacturing company and need guidance on understanding its value and developing a strategic selling plan, feel free to reach out. I’m here to help. Contact me at Clark@mfgbusinessbroker.com.
