InSight

Exit and Growth Strategies for Middle Market Businesses

Another Banner Year for Manufacturing M&A

By Catherine Patience | Aug 02, 2016

manufacturing M&AFour major business categories, manufacturing, healthcare, business services and distribution, account for approximately 80% of the deal activity reported to GF Data, a company charting middle market private company transactions.   The manufacturing M&A sector, coming off a banner year in 2015, is poised to continue right where it left off in 2016 in terms of middle market mergers and acquisitions activity.

During the first quarter of this year, manufacturing deal values averaged 6.5X EBITDA (earnings before interest, taxes, depreciation and amortization).  The averages are further segmented by whether or not there was a “branding” component involved in the manufacturing process, which added between 1.2X to 2.1X to the multiple. Deal size also played a role in manufacturing company valuation with transaction values between $50 and $100 million commanding the highest prices. Add-ons in the manufacturing sector between $25 and $50 million commanded slightly higher multiples than those under $25 million.

Data also suggests that the debt levels used to complete manufacturing transactions varies slightly by deal size, with the most debt being deployed for deals between $50 and $250 million at 4.1X EBITDA.

In addition, data shows that when an acquirer adds-on to an existing platform investment in their portfolio, they use markedly higher levels of debt than they do on the initial platform deal.  The deal is actually being financed based on the characteristics of an entity other than the business being acquired.

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