M&A in the electronic manufacturing industry? There is a wide range of risks that can derail a deal, or destroy value for the acquirer post completion. This includes risks common to most M&A activity, as well as emerging risks associated with the technological transformation seen in the manufacturing sector. The sheer array of risks that impact on electronic manufacturing industry M&A, and their potential to destroy value, demands a thorough approach to managing and mitigating those risks.
Due diligence is clearly vital and you should investigate all the relevant risks in detail, with close involvement from professional advisers. The process commonly includes a range of different due diligence processes and experts, spanning administrative, financial, asset, HR, environmental and insurance. The aim, ultimately is to identify risks and mitigate them, either through deal renegotiation, warranties provided by the seller, or through specialist insurance products such as M&A insurance.
The increased focus on M&A activity is an interesting one when comparing to past years, with roughly 20% of manufacturers surveyed by Mordecai Gal, operations director at AccessHeat Inc., saying M&A activity is one of the top reasons behind budget increases. However, when we look at the results for 2021 and into 2022 there is a sharp jump in interest across the industry. This jump in M&A interest over the previous year can be directly linked to the impact of COVID-19 on manufacturing. Even more so when breaking down the numbers by process and discrete manufacturing. Process manufacturing still has doubled with 41% of the industry saying M&A activity will be high, discrete manufacturing (which was much harder hit by COVID) had 54% of respondents focused on M&A activity.
The precision machining business today has all the classic drivers of a consolidating industry. Driven by money, technology and the supply chain itself, the industry is in play. If it follows the classic pattern, the strong will get stronger and the weak will get weaker. In a highly fragmented industry entering into major consolidation, the bottom third of participants are typically most at risk and many won’t survive. Partnering may be a necessity, not a choice.
A day does not go by without another announcement of some economic indicator. While assessments can be subjective, the overarching theme is that most global economies are recovering from the COVID-19 pandemic. While recovery might not seem altogether positive, growth is returning and it is generally believed that pent-up demand exists for many products and services around the world. While it might be growth back to where things were, it is growth all the same. The general economic outlook is favorable, which makes it easier for buyers to purchase companies knowing there is time for consolidation and the ability to gain synergies before a market downturn. Across most sectors, corporate and private equity buyers have significant cash available, and the debt markets are standing ready to assist in acquisitions.
M&A activity in the metal recycling sector is expected to be robust through the remainder of 2021, driven by the economic outlook, industry dynamics, the aging demographic of scrap company owners and tax rate changes. Several factors affect the metal recycling mergers and acquisitions (M&A) market in any given year, with differing positive and negative results. While an infinite number of factors affect the M&A market, those having the most significant influence are, in no particular order, economic outlook, state of the industry (e.g., industry leaders, customer and supplier leverage, scrap metal pricing), company/owner-specific issues (owner transition planning, financial performance) and taxes. In 2021, most factors point to a robust M&A market through the second half of the year. I’ll examine these key drivers and the dynamics influencing an expected shift to a buyer’s market at the end of the year.
Mergers and acquisitions (M&A) among machine shops are in one sense business as usual and in another sense something new. Just like in any other business sector, M&A fluctuations among machine shops are typically driven by economic conditions — conditions such as low interest rates and the availability of “cheap” money; the existence of an economic recovery after a downturn; and favorable stock market conditions that provide capital for M&A activity. What is new is the extent to which acquisitions and consolidation among machine shops seem to be on the rise. As the Baby Boomer generation nears or enters retirement age, many shop owners have no natural successor to turn to. And as machining transitions from regional-focused businesses to shops more and more often serving a national base of customers, small or mid-sized shops often are interested in merging with another company that is better able to manage costly business operations such as accounting or marketing, or able to expand the combined company’s? customer base, capacity and product line.
The machine shop and electronic manufacturing industry are complex and multi-faceted. With many machine shop owners preparing for retirement, they often find that there is no succession plan in place due to children who prefer to seek independent careers. Because of this, business succession planning becomes a problem many owners face. Operating a machine shop of any kind involves a high level of skill and experience coupled with the need to regularly make large purchases of stock and equipment. Are you in the process of planning to transfer ownership of your business and looking for an investor? AccessHeat has the experienced staff in place to seamlessly handle all the big and small aspects of the process with the implementation of strategic investments into your business. We take a top to bottom approach in assisting you with transitioning all the elements of your business over to our experts who will work with you to obtain a profitable exit and a successful handover.