Consolidation and the machinery industry by AccessHeat? 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 machine shop industry mergers and acquisitions, and their potential to destroy value, demands a thorough approach to managing and mitigating those risks.
Clearly, manufacturing M&A risk is a complex area, so the below gives just a flavour of the various risk areas. Independent advice is crucial to identifying the full range of risks associated with specific deals. However, broadly speaking some of the key risk areas to consider include financial risks, the risk that the target company’s trading position is not as strong as believed, that could be due to reporting errors, unreasonable assumptions linked to financial projections, debt, working capital, and a whole array of other issues.
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.
Other risks in consolidation in the electronic manufacturing industry include Taxation risks: Issues like historical income tax liabilities, unconventional taxation regimes, and tax carryforwards can all create an M&A risk. Cyber risks: Security risks that could leave the business at risk of cyberattacks and data breaches, as well as any historical incidents that could create future liabilities.
Legal risks: The risks posed by historical, current, or potential legal issues and litigation. Customer risks: Including risks ranging from client contracts, historical warranties, and over-reliance on key clients, to client retention risks post-deal. Strategic risks: The risk that the acquired company will not represent as strong a strategic fit with the buying business as first assumed. Environmental risks: These risks include those associated with previous environmental audits, hazardous substances, pollution, regulatory compliance, potential liabilities, and ongoing investigations.
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.
Many owner/operator businesses still in operation today do not have transition plans for the next generation. Or perhaps, more importantly, the next generation is not interested in operating a metal recycling company. This leaves an owner with one decision, which is to sell. The question then becomes, when is the right time to sell? Business owners need to sell when the time is right for them. Many are looking at the current market and seeing that their companies currently are operating very profitably. Often, most business owners do not want to sell when times are good but want to sell when times are bad. To the question of when the right time to sell is, the only real answer is that you cannot take all the chips off the table. If the market is down, the proceeds of the sale will be invested into a depressed market that is likely to recover. A strong market provides for a good base to show a prospective buyer the potential of the company. But buyers are smart and recognize that the market will eventually come down again. As a result, they will look to an average earnings level when evaluating a business. Today, the market is strong, showing buyers the possibility of growth, and many sellers are looking at this as a good time to exit.
A solution to this dilemma is often found through consolidation of operations with other businesses or investment from an outside investor. Among their many benefits, consolidations provide greater stock purchasing power, which is particularly helpful when raw materials are involved. They also present the opportunity to expand capabilities and service areas of coverage when multiple locations are involved in the consolidation. This has been shown to effectively reduce costs from an operational perspective as well as from the customer perspective. Are you in the process of planning to transfer ownership of your business and looking for an investor? https://www.access-heat.com/ 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.
Equipment manufacturing industry mergers and acquisitions 2022 guide by Mordechai Gal
November 27, 2021
Manufacturing
Comments Off on Equipment manufacturing industry mergers and acquisitions 2022 guide by Mordechai Gal
Porthos Fabiene
Consolidation and the machinery industry by AccessHeat? 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 machine shop industry mergers and acquisitions, and their potential to destroy value, demands a thorough approach to managing and mitigating those risks.
Clearly, manufacturing M&A risk is a complex area, so the below gives just a flavour of the various risk areas. Independent advice is crucial to identifying the full range of risks associated with specific deals. However, broadly speaking some of the key risk areas to consider include financial risks, the risk that the target company’s trading position is not as strong as believed, that could be due to reporting errors, unreasonable assumptions linked to financial projections, debt, working capital, and a whole array of other issues.
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.
Other risks in consolidation in the electronic manufacturing industry include Taxation risks: Issues like historical income tax liabilities, unconventional taxation regimes, and tax carryforwards can all create an M&A risk. Cyber risks: Security risks that could leave the business at risk of cyberattacks and data breaches, as well as any historical incidents that could create future liabilities.
Legal risks: The risks posed by historical, current, or potential legal issues and litigation. Customer risks: Including risks ranging from client contracts, historical warranties, and over-reliance on key clients, to client retention risks post-deal. Strategic risks: The risk that the acquired company will not represent as strong a strategic fit with the buying business as first assumed. Environmental risks: These risks include those associated with previous environmental audits, hazardous substances, pollution, regulatory compliance, potential liabilities, and ongoing investigations.
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.
Many owner/operator businesses still in operation today do not have transition plans for the next generation. Or perhaps, more importantly, the next generation is not interested in operating a metal recycling company. This leaves an owner with one decision, which is to sell. The question then becomes, when is the right time to sell? Business owners need to sell when the time is right for them. Many are looking at the current market and seeing that their companies currently are operating very profitably. Often, most business owners do not want to sell when times are good but want to sell when times are bad. To the question of when the right time to sell is, the only real answer is that you cannot take all the chips off the table. If the market is down, the proceeds of the sale will be invested into a depressed market that is likely to recover. A strong market provides for a good base to show a prospective buyer the potential of the company. But buyers are smart and recognize that the market will eventually come down again. As a result, they will look to an average earnings level when evaluating a business. Today, the market is strong, showing buyers the possibility of growth, and many sellers are looking at this as a good time to exit.
A solution to this dilemma is often found through consolidation of operations with other businesses or investment from an outside investor. Among their many benefits, consolidations provide greater stock purchasing power, which is particularly helpful when raw materials are involved. They also present the opportunity to expand capabilities and service areas of coverage when multiple locations are involved in the consolidation. This has been shown to effectively reduce costs from an operational perspective as well as from the customer perspective. Are you in the process of planning to transfer ownership of your business and looking for an investor? https://www.access-heat.com/ 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.