As we approach the second half of the year, the manufacturing industry finds itself in a unique position between continued economic expansion and potential trade threats which could derail industry trends. That said, if you are a business owner in the industry considering a transaction, the outlook for both selling and purchasing looks positive thanks to many manufacturers producing positive metrics over an extended period of time.
This is the main driving force behind the success of the industry as a leader in the global economy. However, as organizations expand, it is amidst the turmoil and uncertainty of political factors such as trade agreements and tariffs. It is this that seems to be the primary compulsion for most of the merger and acquisition activity.
Despite the potential threats posed by the politics of trade, many businesses in this area demonstrate tremendous growth metrics, which pitch them as viable targets for acquisitions or mergers. In that sense, 2019 could be one of the most advantageous ears to sell or purchase a company in the manufacturing industry.
Manufacturing Market Opportunities
One of the most advantageous factors for companies in the manufacturing industry is the critical nature of the work done, which has fostered continued economic growth. Over the past few years, the industry has seemed to thrive, recovering from the recession of the early 2000s and is likely to surpass growth expectations for the second year in a row.
Additionally, many businesses in this sector have spent the past few years identifying opportunities to implement technology that will increase production yields. Manufacturers have multiple points across their entire organizations that lend themselves to technological advancements.
For product innovation and design, three-dimensional prototyping can be integrated. Cognitive technologies, such as artificial intelligence, can be applied to enhance the customer life cycle by creating exceptional experiences which foster continued growth. Engaging automation tactics during the manufacturing process, like using robotic arms on production lines, can increase outputs while implementing automation in other parts of the business, such as the finance office, can shorten the length of time receivables are outstanding and improve cash flow. Positively impacting these business metrics prime the business for a transaction.
Finally, coming out of 2018, the merger and acquisition activity not only increased, but the average deal size grew as well compared to what we saw in 2017. This seems to have positioned the industry for an active 2019, driven by an increasing focus of U.S. companies to expand their geographic presence and product portfolios.
Environmental Services Market Threats
However, the growth of the past year was also tarnished by tariff activity and negotiations between the United States and China, two of the most dominant players in the global manufacturing industry. The uncertainty began when the U.S. introduced tariffs on imported steel and aluminum which kicked off a volley of trade restrictions between the two nations. The situation creates several risks for those operating within the industry and leaves many questions regarding the impact such regulations will have on profit margins as the price of raw materials remains in flux.
Throughout the turmoil of trade restrictions, we have also seen talent retention among top executives becoming an issue. The job vacancies have been growing at double-digit rates beginning in 2017 and are poised to surpass the record high seen in 2001.
The manufacturing industry also faces a talent shortage of skilled workers, which could significantly impede the rapid growth and regeneration we have seen over the past few years. Without a workforce that has the right skill set, manufacturers will not be able to keep up with growing demand, will be unable to respond to new market opportunities, and will fail to pursue innovations that would continue to propel the industry’s growth.
How The Hatteras Group Can Help
The Hatteras Group is a collaborative team of professional intermediaries and advisors that guides business owners and entrepreneurs as they navigate the complex process of mergers or acquisitions in the manufacturing industry. Generally, we work with those companies whose annual revenues are $5MM to $100MM.
If you are trying to value your business in an effort to sell it, we can help you audit the health of your company with an advanced 10-point evaluation checklist to determine if there are any issues that could potentially derail a sale in the future. Contact us today for more information!
