How Manufacturers Can Become More Valuable to Investors, Customers, and Trading Partners

In the manufacturing industry, a tidal wave of mergers and acquisitions (M&A) continues to gain momentum, opening opportunities for companies to transform and innovate their value creation. Making the best use of existing data assets, simplifying processes, and planning technology from a cloud-first perspective can make a great difference in the value and viability of a manufacturing company—both to support an M&A transaction and during everyday operations.

The path out of the pandemic does not follow a straight line. Some counties are re-imposing mask mandates or reconsidering restrictions. In some locations, delta and other COVID-19 variants are surging. Vaccinations are lagging in some U.S. states and regions. But even without complete certainty, manufacturing leaders seem to have a basic confidence in their road ahead. Many organizations are evaluating and realigning their investments and portfolios; at least some analysts and executives feel that it’s the right time to drive growth and create value through strategic M&A. American manufacturing alone, 359 M&A transactions took place by the end of the second quarter of 2021. The Americas led the world in very large deals with a volume of $5 billion or higher.

Driving transformation by modernizing key systems

Analysts are carefully watching the conditions under which M&A activity takes place. Many of their observations support the transformative digital strategies Sikich often supports for its clients, including a private equity company that specializes in manufacturing. For example, PwC states that M&A transactions may be seen to be highly advantageous and justify larger investments when they help companies accelerate their digital transformation. PwC notes that technological innovations can drive M&A when they help companies modernize their operations, stay current with industry trends, and meet emerging regulatory standards and expectations for environmental and social practices.

Sikich has helped many manufacturers modernize their operations and systems to become more productive and competitive by implementing ERP and CRM solutions. Often, consolidating data sources and enabling companies to make decisions based on a single system of record is part of these projects. As manufacturing analysts point out, taking advantage of real-time in addition to historical data can make a huge difference in a company’s ability to compete and proactively meet customer needs. It can also make it more attractive to investors who understand that equipment and customer data can help manufacturers create new revenue streams and innovate services for customers. For some manufacturers and investors, acquiring a smaller organization that knows how to create value from its data assets can be a key step in a transformative initiative. They may find that innovative, data-driven processes, services, and products can help a manufacturer gain an edge, and they may also realize that acquiring an organization’s talent can enable them to innovate and transform with a faster momentum and at a greater scale.

Streamlining processes and architectures

One of the assignments Sikich performed for the private equity firm in the story we mentioned was evaluating the technical maturity of a manufacturer that was going to be divested by its holding company. This assessment was part of validating a transition services agreement (TSA). Many analysts recommend that private equity firms and their target companies take advantage of opportunities for efficiency and process improvements through automation, data analytics, and other technologies as they prepare a TSA. Reducing the costs of legacy technology management and eliminating process inefficiencies can deliver savings in the range of five percent or higher and make transactions more sound. From preliminary consulting and Business Process Alignments to software deployments and on to managed IT services, helping companies modernize and simplify their technologies while making data intelligence pervasive is what Sikich takes pride in.

In the light of our expertise, some analyst guidance for manufacturers makes great business sense in the context of M&A activities as well as for running a competitive, productive organization. Certainly, our private equity and manufacturing clients would agree that early planning and expert diligence to understand the opportunities for standardizing architectures, integrations, and workflows in the run up to a major strategic initiative or organizational change is sound advice.

Cloud flexibility eases transitions

Planning technology with a cloud-first perspective and modernizing legacy systems with cloud-based solutions—another, often voiced recommendation—can greatly enhance the scalability, flexibility, risk management, and cybersecurity of the business systems and data sources in a manufacturing company. Compared to the complexity of transitioning on-premises digital resources, in the cloud it is much easier to onboard organizations and teams and provision them with access to data and systems. Reassigning them from one company to another is similarly efficient. Post-merger organizational integrations in the cloud can focus on business outcomes and aligning individual and team goals and KPIs instead of connecting and harmonizing technology systems.

In many manufacturing companies, a part of the formerly office-based workforce began working remotely when the pandemic started. When it was safe to reopen onsite operations, production and distribution employees were onsite, as always, while others continued working from remote locations or alternated between office, home, and other remote locations. When people can access company resources securely in the cloud, it doesn’t matter where they are—they can work together and be productive at any location. That also gives companies access to talented people who might not be available if they had to travel to a certain location.

Generating more value from supply chain management

Supply chain synergies often play into M&A events in the manufacturing industry. As much as 50 percent or more of the overall value opportunity in an M&A transaction depends on possible synergies in the supply chains of the organizations involved. Manufacturing and distribution companies have made considerable efforts to make their supply chains more efficient and reduce the costs of supply chain management. When recent, unexpected changes in demand along with supply disruptions disrupted supply chains for many manufacturers, they realized the urgency of making their supply chains more resilient. For example, they eliminated dependencies on single vendors, renegotiated terms and service levels with logistics providers, removed constraints on their inventory management, or reduced the use of expensive packaging materials produced in distant locations.

Many times, one of the first steps in re-creating supply chain management is gaining the right visibility of the many moving parts. That may require new ways of making use of data assets and sources a company already owns and drive the adoption of new information sources, such as real-time data streams from edge computing or the internet of things (IoT). Sikich has helped a number of organizations achieve success in creating more value from their supply chains by introducing greater transparency and rebuilding processes for better resilience.

Are you interested in discussing the M&A readiness of a manufacturing company or any related concerns? We should talk.

This publication contains general information only and Sikich is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or any other professional advice or services. This publication is not a substitute for such professional advice or services, nor should you use it as a basis for any decision, action or omission that may affect you or your business. Before making any decision, taking any action or omitting an action that may affect you or your business, you should consult a qualified professional advisor. In addition, this publication may contain certain content generated by an artificial intelligence (AI) language model. You acknowledge that Sikich shall not be responsible for any loss sustained by you or any person who relies on this publication.

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