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On the Production Line of Success with Middle-Market Manufacturing Firms

By Generational Equity

09/27/2017

“For years, people have talked about manufacturing being dead and jobs going overseas, but there is a resurgence in the U.S. In the lower middle market, manufacturing is very much a sought-after industry, as it’s been the number one or two market leader for the last year or two. We see it every day: manufacturing businesses are busy, profitable, and in-demand.” Craig Everett, Pepperdine Private Capital Market Project

We recently highlighted the positive impression that middle-market businesses have been making on the U.S. economy. Between 2011 and 2017, this small but significant section of firms has been a driving force in helping the nation recover from the Great Recession.

Although they only represent 3 percent of all U.S. companies, they account for over a quarter of all business revenue. With a growth rate of nearly 7 percent in the past 12 months, which will return to a healthy 5 percent in the next year, the middle-market’s impact is set to continue for the foreseeable future.

Although this swell of positivity within the middle-market is present in the vast majority of industries, it has been especially apparent in manufacturing. This is something we’ve noted in recent months: our own Chris Heckert, Managing Director and Supervising Principal of Generational Capital Markets, Inc. (an affiliate of Generational Equity) contributed to the M&A Advisor Roundtable entitled “Manufacturing in Motion”. In this, he and other M&A professionals noted how U.S. manufacturing is primed to be more competitive on the global stage soon, and this is already clear to see in the middle-market.

Middle-Market Manufacturing in Focus

With manufacturing companies representing a sizeable chunk of middle-market businesses (over 17 percent), when they are enjoying a successful spell, it provides a boost to this whole section.

According to research from the National Center for the Middle Market in their 2Q 2017 Middle Market Indicator, manufacturing enjoyed revenue growth greater than the average for all middle-market firms. This growth is also expected to continue for the next 12 months (albeit at a slightly slower rate), as business owners remain overwhelmingly confident in the U.S. economy and willing to invest extra cash into building their company.

This is not all, as middle-market manufacturing firms:

  • Generate $1.1 trillion annually
  • Employ nearly 30 percent of the manufacturing workforce
  • Saw 53 percent of these companies add to their workforce in the past year (compared to only 8 percent that saw a decrease)
  • Experienced growth of 120% between 2011 and 2017

This is a direct result of manufacturing in the U.S. becoming leaner, agile, and more competitive in the global market, indicators we noted in “Manufacturing in Motion”. Also, the key role these firms play in the supply chain for both smaller and larger companies means the middle-market now feels more important than ever before.

Of course, there is still room for improvement. For most middle-market business owners in the manufacturing sector, closing the skills gap and investing in new technologies are the biggest issues to be addressed. Fortunately, around 80% of these are interested in investing in their future. For those in this bracket, a number of M&A strategies could help generate wealth to invest in growth, which will increase your business valuation when you decide to exit.

Manufacturing Success in Deal Activity

What does this exciting period in middle market manufacturing mean for M&A activity? Well, it is not just our team at Generational Equity that are expecting a noticeable rise in deals completed. Research collected by IBBA, M&A Source and Pepperdine Private Capital Market Project placed manufacturing firms as the most sought-after in the lower middle-market (a trend that has lasted four years). This high interest is both among investors at home in the U.S. and overseas, placing company owners that are thinking about exiting in an ideal position.

If you own a middle-market manufacturing firm, now is an ideal time to start exit planning. Even if you don’t feel ready to move on from your business, it is never too early to start preparing for the future. In this attractive market, you never know what opportunities could present themselves. What you can control is building a buyer ready business – one that maximizes the value of your company and puts you in touch with interested buyers. Taking this first step provides a clear path for the future of you and your biggest investment.

To start your journey, join us at a complimentary executive conference. Here, our experienced M&A professionals will guide you through what buyers are interested in, how to determine the best time to exit, and what key components make up the ideal exit strategy. In just a few short hours, you will feel more assured on how to manufacture the optimal exit from your company – one that secures your financial legacy and sets you up for life after business.

You can find out more information by clicking the following links:

And you can always contact us directly on 972-232-1121 to speak to one of our team directly. We look forward to hearing from you.