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6 common deal breakers for manufacturers looking to sell

Published: June 20, 2024
Updated: June 20, 2024
Article

Selling your manufacturing business is a process that can take up to a year. The decision to sell a business marks a significant milestone that requires detailed planning and foresight. The path to a successful sale is often filled with challenges and obstacles that can disrupt the process and jeopardize the deal.

As manufacturing owners embark on this journey, it is imperative to recognize potential barriers to a successful sale and take proactive measures to mitigate their impact.

In this article, we explore six common deal breakers that manufacturers encounter when looking to sell their businesses. From managing value expectations to navigating environmental concerns, each factor plays a critical role in shaping the outcome of a sale. By understanding and addressing these challenges head-on, manufacturers can enhance their chances of achieving a successful transition in the competitive marketplace.

Here are six potential deal breakers:

Many manufacturers have an unrealistic expectation of the value of their business. This is one of the most common reasons why a deal falls apart. There's often also confusion around the net cash proceeds a buyer will receive versus the stated purchase price. Further, as buyers and sellers navigate the global pandemic and economic crisis, deal valuations and structures have continued to adapt. An experienced advisor can help ensure that a deal's value and structure is aligned with the current market.

Manufacturing is a capital intensive business. There are a number of major capital expenditures, such as machinery, vehicles, equipment, and property. It's critical to understand the current state of these assets and reasonably assess the need for ongoing or significant investments. This assessment will be critical whether you're selling shares of the company or the assets.

This may not be tracked accurately through internal financial reporting processes, and may not be actively managed. For many manufacturers, foreign exchange impacts can be significant where revenues and costs are based in different currencies. It's important, at a minimum, to thoroughly and fairly demonstrate the historical impact of foreign exchange in your business.

Facilities used to produce goods have exposure to contamination, in both minor and major forms. That can be an issue for the buyer, who does not want to take on the liability of cleaning up the property. An environmental site assessment will almost certainly be required before the deal closes, and sellers are well advised to get this done early. If issues emerge late in a deal, particularly expensive ones, the buyer may decide to walk away from the deal.

A well-functioning supply chain is efficient, effective, and valuable. But it's not uncommon for a supply chain to become disrupted, especially if you're importing materials from around the world. The COVID-19 pandemic was a wake-up call for many businesses, as globally interconnected supply chains broke down quickly. Backup suppliers and other risk mitigation strategies can minimize risk to the supply chain and enhance the value of a business from a buyer's perspective.

There are a number of issues that can occur once the sale process has begun, such as a drop in sales or unforeseen costs. These are now magnified by the broad uncertainty resulting from the COVID-19 pandemic. Any expected or unexpected issues should be shared with potential buyers to improve your credibility. While not every forecast will be 100% accurate, it's best to provide a realistic forecast that contemplates any possible issues due to external factors.

How we can help

Our M&A and Capital Markets and Tax teams provide manufacturers with guidance when selling their business. We provide strategic advice before, during, and after the transaction process. Think of us as a one-stop shop. Contact us to find out how we can help.

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