Manufacturing Growth Through Acquisition: What to Know and What to Ask

Editor’s Note: David Braun is founder & CEO of Capstone Strategic.

Manufacturers and supply chain companies have always known acquiring an existing new service or innovative new product line is preferred to reinventing the wheel. That is why 2021 saw so many M&A deals. Reporting has shown that manufacturing secured $36 billion in total deal value in Q1 of 2021, compared to $17 billion in Q1 of 2020. Clearly, investments through mergers and acquisitions are happening again but what is the best way to identify the right company to determine the right deal? 

Below are 4 questions manufacturers and supply chain companies need to ask and answer when considering an acquisition strategy:

1. Who are you? Before the M&A process can begin, it is vital to take an honest assessment of your company’s core competencies, business culture and ability to share risk tolerance for a potential acquisition. More than just the licensing of a platform service or use of a product, acquisitions involve buying entire companies which have existing workforces, partner relationships, vendor contracts, facility and equipment leases, and more. Take a deep dive nto the “personality” of your company infrastructure like have you built a task-focused environment that may find challenges integrating with a more creative team? This will help determine how easily it will be to “merge” before moving forward with “acquire.”
2. What are you trying to achieve? Growth shouldn’t be the reason but rather the result. And while it may seem counterintuitive, having multiple reasons for buying a manufacturing or supply chain company usually creates unclear decision-making. The most successful M&A deals happen when there is one overriding reason for the deal. Having a single, clear purpose for an acquisition keeps you focused on which markets to look at and which companies to consider. Here’s why. When companies make the mistake of trying to use the acquisition opportunity to fulfill multiple needs, it can justify almost any target, When possibilities are considered unlimited, these mergers can spin out of control and fail.
3. Are you prepared with a specialized team? It’s important to know what you don’t know. Acquisitions are a collaborative effort and require a team of specialists to study, analyze and communicate their expertise. For example, you may have a lawyer on staff who understands your industry rules and regulations – but what about the industry of the company you are looking to acquire? Build a team of experts to provide knowledge and insights on current and anticipated aspects including government compliance, consumer trends, distribution needs, global logistics, tax structures, patent law, and more in order to be successful.
4. How will you contact them?  Not every company will officially be on the market. Some companies will be listed with brokers and others may be more discreet indicating to just a few they could be interested in selling for the right price. No matter how the company will consider entertaining offers, the first step is to fully communicate the “fit-potential” of bringing the two companies together. Establishing trust between the buyer and seller through early face-to-face meetings is critical, and will provide an opportunity to gain valuable insights. Conduct company searches using a structured process and objective tools. When integration planning begins don’t take shortcuts. Relevant research is a sign of respect toward your stakeholders and theirs.

Ultimately, assessing the value of a potential M&A deal for your manufacturing or supply chain company will be equal parts art and science, requiring the exercise of good judgment combined with a systematic analysis of the data. There are many ways to calculate a company’s financial value, and none are foolproof. All methods require trade-offs, which must be balanced with the strategic objectives driving the deal. Adopt multiple perspectives, while exercising patience with a thorough analysis to secure and deliver reliable results. Good luck!

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