Exit or Expand? A Guide for Business Owners

The robust acquisition and consolidation of former family-owned precision metal forming and fabricating technology companies continues its strong 5-yr pace, with expectations it will continue throughout 2023. Both strategic and financial buyers (e.g. private equity) are consolidating competitors to increase market share and expand product lines. While some business owners are looking aggressively into the future, others feel “exhausted” and are ready to cash out at what could be the peak of the M & A frenzy. Either way, we see tremendous opportunities for family-owned companies (including PMA members) to either sell or grow through acquisition. 

Some of the variables adding complexity to M & A activity include the well-documented supply-chain issues and increasing workforce challenges. Asset-intensive metal forming companies face significant change that will create challenges, and opportunities. Besides wondering if your children or next-generation family members are prepared to run the company, business leaders must consider supply-chain disruption, rising material costs, technology changes and sustainability.

Faced with these dichotomies and a red-hot M & A market, many business owners and stakeholders wonder what strategic direction to follow. This is the time to ask yourself if you have the strength to weather another year of ownership stresses. If not, is the next generation of your family ready and willing to step in and lead the business to a higher plateau? If you decide to expand, you can choose to continue to grow organically or through acquisitions, finding partners or additional funding. On the flip side, if you do not want to make the necessary investments to remain competitive—or you choose to take advantage of the high valuations in the current market—this may be an ideal time to sell.

Regardless of thepath selected, begin the process with a thorough and honest evaluation of your business and personal situation. Discuss these topics with your management team, and conduct a brainstorming session with an investment banker experienced in guiding businesses through strategic alternatives. The banker should understand your role in the precision metal forming industry, as well as the needs of a business of your size, to enable you to properly evaluate options, navigate the process and ensure the most value from the transaction.

Options for Growing Your Business

If you decide to invest and expand your company, your options include:

• Find a partner–Seek a strategic partnership to propel growth with expanded resources or capabilities.
• Secure growth capital–There are several sources of growth capital, including:
  • Bank debt via a commercial loan; the market currently offers favorable rates and terms.
  • Mezzanine financing through an unsecured loan that typically commands higher interest rates than a bank loan, but has no principal amortization, optimizing liquidity.
  • Equity investment, in which an individual or firm exchanges cash for ownership in your company with the anticipation of sharing in the income
• Acquisition–If you want to consider an acquisition, only choose to acquire another company that will be accretive to the value of your business. Begin by developing a checklist of criteria that the acquisition should provide. 
• Organic Growth–Create new ways to increase revenue by using your existing resources more effectively.