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US Manufacturers Look For Acquisitions Amid Pandemic Wreckage


12/10/2020


US Manufacturers Look For Acquisitions Amid Pandemic Wreckage
While many manufacturers in the United States have been severely hit by the Covid-19 pandemic, the health crisis has also created opportunities for acquisitions.
 
With auto plants and heavy equipment producers that use the metal parts from Grede Holdings LLC, shutting down, the company saw its business drop by 90 per cent, said its CEO Cary Wood. A bumpy recovery followed. But over the last two months, Wood has also started talks for acquiring seven smaller foundries.
 
"I can wait out the cycle," Wood said, "but many of these guys can't."
 
Spun out of publicly traded American Axle & Manufacturing Holdings Inc last year, Grede had been looking out for acquisitions even before the pandemic. But since the pandemic hit, the rate of deal talks is much higher compared to last year, Wood said in a media interview. He equated the current wave of restructuring with one after the 2008-09 global financial crisis.
 
Throughout the US economy, a very similar story is playing out.
 
In response to the economic situation created by the pandemic, they planned to make acquisitions, said 56 per cent of manufacturers in a recent survey of leaders of companies with over $250 million in sales. A push for acquisitions was also found in other sectors even though not as strong. The survey found that only 36 per cent of heads of consumer goods companies opined in the affirmative for acquisitions opportunities while about 41 per cent of companies in the health care sector were looking to acquire.
 
"The first impact of COVID on manufacturers was to make them defensive - they all sought to conserve capital and find ways to continue operations," said Scott Fuzer, a mergers and acquisitions expert at West Monroe, the business consulting firm that conducted the survey. "But now," he said, the stronger companies "are going on the offensive."
 
Many smaller manufacturers are "just holding on - especially family businesses - where the family is already on the edge of wanting to get out of the business," Fuzer said.
 
According to data compiled by Refinitiv, there was a 36 per cent jump in the third quarter in the merger activities in the US at 3,296 deals which was preceded by a slump in M&A activities in the early months of the pandemic. While a large number of the biggest deals took place in the tech sector, there were deals in old-line industries as well.
 
For the manufacturing sector, one of the reasons for this rise in deals is because of the fragmented nature of their supply chains. The parts those factories use to build finished goods are often supplied by smaller companies even as large producers dominate the sector.
 
He's looking "at a couple of small to medium-sized acquisitions" that would help his business, said Austin Ramirez, chief executive of Husco International Inc. The company makes parts for cars and off-road machinery.
 
The crisis has helped "compress" prices, Ramirez said.  "We would have looked at these things anyway," he said, "but it's more of a buyer's market."
 
(Source:www.businessworld.in)