When You Can't Compete Against Offshore Manufacturers Should You Sell Your Company?

If you manufacture products in the United States, I congratulate you. With high real estate costs, high labor, regulatory, and other costs included in your P&L, it has become more difficult to obtain the margins you once had. While it is predicted that the inflationary pressure in third-world countries will soon cause these costs to balance out, at the moment, you probably have a difficult time competing. So what are the options for a company in such a predicament?

  • If you can’t beat them, join them and offshore some of your product as well
  • Find a way to convince your customers to pay your higher prices
  • Hold on tight and bear your losses until things change
  • Find ways to reduce your manufacturing costs
  • Sell your company

We are increasingly engaging with manufacturing company owners who are choosing to sell their company. In such cases, a few common questions typically arise in making the decision to cash out while simultaneously maintaining a legacy and keeping their employees employed.

 

Why would I receive an attractive offer if I have losses or razor thin margins?

Different buyers find value in different types of opportunities. After we review a company’s financials and understand how a buyer could reduce the overall cost or per piece cost, or alternatively, how potential synergies could be formed, we contact the right people at the right companies in order to convey the hidden value we’ve uncovered.

 

If I can’t reduce the cost of our operations, how could an acquirer?

When the acquirer is a much larger company, it may be able to create benefits and opportunities to reduce costs. For example, such companies:

  • Can take advantage of manufacturing efficiencies that result from a larger scale
  • Have more purchasing power
  • Are able to access capital for automation and process improvements
  • Can reduce the overhead per piece
  • Capitalize on their own internal manufacturing skills and technology to make your company’s processes cheaper, quicker, and more efficient

We recently had a client in the United States that manufactured automation equipment for the metalworking industry. Most people in manufacturing know that a significant amount of CNC machine manufacturing had moved to Taiwan long ago and to China not too long ago. Our client faced pricing pressure due to a large number of companies that were now selling similar equipment that was made overseas. Our client evaluated all of its options and made a decision to sell primarily because it felt that doing so would protect its tenured and loyal employees. We found our client several interested buyers, all who saw great opportunity in the company and were willing to pay for it. The large US manufacturer that ended up buying our client obtained our client for the potential value that we identified during our evaluation of our client’s company.

After the acquisition, the buyer:

  1. Purchased the equipment that our client needed to reduce their unit cost
  2. Trained our client in better manufacturing techniques to increase productivity
  3. Negotiated lower component costs for our client
  4. Dramatically increased manufacturing efficiencies by increasing sales

It was a winning proposition for all parties: the employees kept their jobs, the buyer realized instant value, and our client’s shareholders were finally able to monetize their equity that they spent many years building.

If your company is having a difficult time competing with products made offshore and you are evaluating whether selling your company to a US manufacturer might meet your objectives, please contact us to see how we can help.

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