Facing a Fork in the Road for Your M&D Company

The COVID-19 pandemic has created a three-pronged fork in the road for many companies that were previously on a defined path to reaching their business goals. The crisis has forced many business owners to decide whether they should remain on that path or take drastic steps to alter it and improve their financial outcomes.

In the manufacturing and distribution industry, these decisions vary significantly from one company to the next based on their product offerings. Some companies are still struggling from the operational and financial impact of the crisis, while others, such as food and beverage companies, saw major spikes in sales as demands for their products skyrocketed. Still others find themselves somewhere in the middle, operating steadily due to their ability to reinvent product offerings and pivot their business models to meet increased demand for hand sanitizer, face masks or other pandemic necessities that could be produced on their assembly lines.

Depending on the experience and the product offerings of your M&D company, your outlook on the future of your business may have changed drastically over the past few months, leaving you faced with critical business decisions much sooner than you ever expected.

Weighing Your Options

The options available to these businesses vary as widely as the situations they find themselves in. Many distressed companies that previously viewed a business sale as a long-term exit strategy are now seriously considering that option today. Meanwhile, companies that experienced surges in revenues are unexpectedly in the position to acquire not-so-fortunate competitors. And those that reinvented themselves during the crisis will need to decide what their new business model and future will look like amid the ongoing effects of the pandemic.

Selling your business

The length and severity of business disruption caused by the mandated closures, supply chain breakdowns and plummeting consumer demand is more than enough to set a business off-course and make a business sale a very attractive option. But deciding to sell comes with its own set of uncertainties, including the value of your business, potential buyers and financial outcome.

As part of Grassi’s sell-side advisory services, we recommend and help execute the following elements of a successful sale:

Business valuation services – When completed by a skilled valuation professional, this analysis will not only help you establish an asking price, but also help you realize the full market potential of your business – which is far greater than your assets.

Confidential Information Memorandum (CIM) – This “story” of your company includes key financial metrics and historical financials, projections, marketplace data and industry comparisons that can attract and narrow down your prospective buyers, whether your buyer is a strategic one or a financial one.

Auction – Don’t settle for the first offer that matches your asking price. A sell-side advisor can identify your top-tier buyer candidates and arrange an auction to maximize their final offers.

Transaction Structuring – Be sure to work with an experienced M&A advisor to select the right transaction structure that meets the goals of all parties, takes potential downward price pressures into consideration and leaves you with the best financial outcome possible.

Expanding your business

With countless companies struggling to adapt to the COVID-19 environment and many business valuations down, now may be an ideal time for thriving businesses to expand. But a low-price tag is not the only thing to consider.

Ensure your buy-side due diligence goes deeper than the numbers to get an accurate picture of the target company’s operational efficiencies, infrastructure, IT controls, workforce adequacies and assets – before they become your problem and expense to deal with. These assessments can help you negotiate the best price and address costly issues before you close the deal.

Staying the course

If your company was impacted by COVID-19 losses and you still managed to stay the course, think about the factors that got you here and pay even closer attention to them in the months ahead. Continue to revisit and tweak your cost and performance management tools and update your business contingency plans, policies and business model to adapt to this new environment. Ensure you continue to have enough cash on hand by completing a 13-week rolling cash flow projection.  Give your workforce – your greatest asset– an objective evaluation to determine if any modifications to employee count, an outsourced financial function, or other workforce planning strategies are right for you.

Based on your industry segment, you can be in any one of the above situations. Whichever one you’re in, we can help you through your decision-making process. Contact Anthony Tomaro, Consulting Services Leader, to learn more.

Anthony Tomaro As a Partner and the firm’s Consulting Services Leader, Anthony Tomaro directs the growth of Grassi’s consulting practice through the development of innovative business strategies and services. His hands-on approach allows him to become intimately familiar with clients’ business operations so he can help them identify and implement ways to increase efficiency and profitability. Anthony specializes in guiding clients through merger and acquisition transactions,... Read full bio

Robert E. Grote Robert E. Grote is a partner at Grassi and leader of the firm’s Manufacturing & Distribution Practice. With more than 30 years of experience in public accounting, tax planning and management consulting services for the M&D industry, Rob has grown the practice to become the second largest industry group in the firm. In his role as M&D Practice Leader, Rob leads a team of... Read full bio