Manufacturing M&A Outlook
BDO Capital Advisors Released Report
M&A activity in the manufacturing and distribution (M&D) sector was down approximately 15 percent in 2016, according to a recent report from BDO Capital Advisors.
A decline was expected after a record 2015, the report noted, and was amplified by the sluggish economy and a brutal election season, which delayed sale decisions. The election results buoyed M&D investor optimism, given the new administration’s commitment to propelling the U.S. manufacturing industry.
“Although time will tell if optimism is warranted,” the report said, “our M&D Index beat the S&P 500 by more than 2x in the three weeks following Election Day.”
Labor concerns are cited by 97 percent of manufacturers in the BDO Manufacturing RiskFactor Report, and risks related to labor strikes are cited by 66 percent. To address this problem, business leaders are partnering in greater numbers with community colleges and trade schools to establish apprenticeship programs.
“These programs show young people how interesting manufacturing work is and that, with added skills, it can provide for a steady career with room for growth, advancement and attractive compensation,” the report noted. “These factors breed loyalty and extend tenure.”
The most recent Institute for Supply Management (ISM) Index shows that US manufacturing activity rose 1.3 percentage points to 53.2 in November, a five-month high as new orders and production increased. This is a sign that the factory sector is gaining steam, although manufacturing employment has decreased in recent months.
With baby boomers retiring and manufacturers competing for younger talent against tech companies, “manufacturers are dealing with shallow labor pools on both ends of the age spectrum,” the report said.
Although buyers pay attention to labor conditions, “it’s rare for shortcomings in this area to derail deals.”
Offering higher wages is one way to reduce turnover and entice applicants, but its not the best for profits. Another strategy employed by manufacturers is to maintain facilities in locations, reducing exposure to local labor pool limitations.