The opening section of Joe Rogan’s recent interview with Elon Musk (https://www.jrepodcast.com/episode/joe-rogan-experience-2054-elon-musk/) was focused on manufacturing. Mr. Musk made a couple of excellent observations related to manufacturing. #1, he conveyed that although product invention and prototype creation are significant achievements, the much harder task is manufacturing the same item at scale, as there are a 1000 elements that need to be done correctly or success will be jeopardized. He also articulated the importance of manufacturing operations to local economies as each manufacturing job is mirrored in the community with five additional jobs ranging from ancillary support positions for the manufacturer to food service positions in proximity. The benefit is also felt in local economies through the expenditure of salaries & bonuses to employees as highlighted in this article related to Boeing: https://www.seattletimes.com/business/boeing-aerospace/boeing-bonuses-pump-hundreds-of-millions-of-dollars-into-wa-state-economy/
IBA has successfully facilitated 100’s of manufacturing company sales in Washington & Oregon as a business brokerage firm. The sales have involved products fabricated out of metal, plastic, fiberglass, composites, wood, stone, and textiles. They have also involved food & beverage consumables with medicinal benefits, mainstream and specialty markets, and targeted for pets and livestock.
The following are seven elements that enhance the value of a manufacturing company in the market:
- Stable or Increasing Revenue: People vote with their dollars. The products they embrace receive an increasing number of votes year after year. The products that fall out of favor see diminishing revenue. If current ownership is not able to be successful in the marketplace, buyers will discount company value out of the perception the business is a turnaround, undercapitalized, or immature entity versus a platform company positioned to support growth.
- Protected Intellectual Property and Proprietary Products & Processes: Company success built on quality, innovation, and superior customer service is attractive. Commoditized products competing on price are not. The more unique an offering and the protective moat around it, the higher the value in the marketplace.
- Trained, Retained, and Skilled Labor: The unemployment rate in the manufacturing sector of the United States economy is over 10% less than the 3.6% found in the economy in general (https://www.statista.com/statistics/217787/unemployment-rate-in-the-united-states-by-industry-and-class-of-worker/). The low unemployment rate speaks to the value of having a cohesive, productive staff in place. A seasoned staff with quality middle management in place will always sell for a premium over one with frequent turnover and centralized executive management with ownership.
- Quality Facilities & Equipment Infrastructure: Common due diligence questions from buyers in the manufacturing sector include, what percentage of capacity is a manufacturing plant operating at? Is a second shift required to enhance production capability? Are significant CAPEX expenditures necessary to increase output? What is the term of the current lease, can it be extended, and at what rate? What tenant improvement infrastructure exists? The better prepared a company is to scale at its present location into the foreseeable future, the more attractive it will be to potential buyers.
- Industry 4.0: The integration of industrial processes with technology is occurring at a rapid pace in the 21st Evolutions including monitoring equipment to mitigate downtime and enhance efficiency for maintenance, the introduction of robotics, and the ability to track production flow employing RFID technology are components of a modern manufacturing facility. Ownership that embraces and integrates new technology is viewed more favorably in the marketplace than parties that avoid planning for the inevitable.
- Supply Chain: The COVID pandemic identified the issues associated with employing just-in-time inventory management and foreign produced components. The inability to manufacture quality products in a timely manner can result in the loss of customers and market share. Companies with dialed in suppliers with options to ensure competitive pricing and consistent supply of component parts are favored by buyers.
- Direct to Consumer (DTC) Business Models: The internet has opened the door for DTC manufacturing business models that allow product to be sold at retail versus wholesale prices. The difference in profitability in selling direct versus wholesale is substantial. Profit is always attractive in the mergers & acquisitions marketplace. The foundation of business valuation is EBITDA times a multiple. The higher the EBITDA the higher company value.
IBA is exclusively a sell side mergers & acquisitions firm. We have almost 50 years of knowledge, experience, and skill facilitating the sale of manufacturing companies. The manufacturing sector is growing in the United States. Buyer interest in acquisition opportunities in the Pacific Northwest is strong. If you are interested in selling a manufacturing company in 2024, our transaction team specializing in the space would welcome the opportunity to learn about your business model, and exit strategy objectives, and provide an overview of our services. All conversations with IBA are held in strict confidence. 100% of our fees are performance based payable upon completion of a project.
It is time to return to America’s roots and become the nation where innovative, quality products are manufactured. Did you know that Henry Ford, in 1941, created a car manufactured out of hemp that ran on green ethanol fuel (https://www.hempoffset.com/henry-fords-hemp-car/). Imagine where the U.S. auto industry would be today, if that type of innovation had taken flight?
IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, mergers & acquisitions, real estate, legal, and accounting communities on subjects relevant to the purchase & sale of privately held companies and family-owned businesses. IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.