The beginning of 2025 has brought its share of market turbulence for some businesses, with fluctuations in tariffs and the stock market creating a range of emotions for manufacturing business owners and operators. For those contemplating the sale of their companies, the landscape for selling a manufacturing business presents a mix of challenges and opportunities. Owners who have diligently built their companies understand the importance of grasping the current market and recognizing what makes a manufacturing business attractive to prospective buyers. This understanding is crucial for achieving a successful exit.
John Phillips, President at Walden M&A, offers his seasoned insights into key trends and essential preparations for manufacturing business owners considering a sale in the current economic climate. His perspective working with manufacturing companies, provides a clear roadmap for navigating these complexities.
Key Trends Influencing the Manufacturing M&A Market in 2025
One of the most significant factors influencing the sale of manufacturing businesses in 2025, according to Phillips, is the dynamic global trade environment, and more specifically, ongoing discussions surrounding tariffs. Phillips observes, “What we’re finding from investors right now is as the tariff discussion is very much in fluctuation, one of the key questions is how dependent they are on the international supply chain”.
This reliance on the international supply chain stands as a critical point of scrutiny for potential buyers. Phillips elaborates on the buyer’s perspective: “If they have a heavy dependence, how quickly can they adjust to find sourcing within the United States, or is this something that is going to have an adverse impact on their margins and revenue?”. Buyers are naturally cautious about potential risks to profitability and operational continuity stemming from trade policies. They seek assurances a manufacturing business can adapt swiftly to shifts in the global economic landscape.
Conversely, manufacturers less dependent on international tariffs often present an attractive opportunity for certain buyers. Phillips notes, “Many of the manufacturers, particularly in the lower middle market, are well established within their regions and communities and do not depend heavily on items potentially impacted by tariffs. This makes them very attractive for outside corporations who want to perform manufacturing within the United States and avoid the tariffs”. This provides a strategic advantage for domestic manufacturers, positioning them as prime targets for acquisitions aimed at mitigating tariff-related risks and strengthening domestic supply chains.
Phillips concludes, “There are multiple ways of looking at the whole tariff discussion depending on the uniqueness of the company, whether they’ve got supply chain exposure and whether they’re already out of the international market; they represent opportunities for others to come in and acquire them as a means of avoiding the tariffs”. This nuanced view highlights the significance of understanding a company’s specific operational footprint and its alignment with broader economic trends.
Regarding specific subsectors within manufacturing with strong buyer interest, Phillips indicates a current “wait and see approach” from many investors. He anticipates a clearer trend will emerge once tariff negotiations and new regulations between major trading countries become more defined. However, Phillips does highlight a significant underlying interest in the sector: “There is a tremendous amount of capital and interest in putting and expanding manufacturing within the United States”. He believes this capital will likely be released into the market once greater certainty prevails, significantly boosting M&A activity in the manufacturing sector. This pent-up demand signals a robust future for well-positioned manufacturing businesses.
Preparing Your Manufacturing Business for a 2025 Sale: A Strategic Approach
Phillips consistently advises sellers to begin preparations early when considering a selling a manufacturing business. This proactive approach allows owners to address potential issues and enhance their company’s appeal to buyers. He outlines several key areas buyers, particularly investors, scrutinize during due diligence.
Operational Independence of the owner is a crucial aspect that buyers examine – is the business able to thrive even without the owner’s constant, day-to-day involvement? Phillips refers to this as a “stress test” of the company’s independence. He poses essential questions: “Have they developed a middle management team? Have they decentralized responsibilities? And are they able to, for example, leave their business for two or three weeks at a time and take a trip without feeling like the business will fall apart without them?”.
A business too reliant on its owner can be perceived as a higher risk. Buyers seek an enterprise with robust systems and capable personnel who can maintain operations seamlessly post-acquisition. Demonstrating a strong, empowered management team and a well-structured operation significantly increases a manufacturing business’s appeal to potential buyers. This independence showcases the scalability and sustainability of the business model.
Robust Accounting and Financial Processes
Beyond the owner’s presence, the financial health and the clarity of the company’s accounting practices are paramount. Buyers need assurance regarding the accuracy and reliability of the financial information provided. Phillips stresses the importance of established processes for financial management: “Is the company set up with the processes in place for something as simple or obvious as accounting? Is there a process for closing out the books, for testing the accuracy of the information to make sure things are timely and accurate, and can other people get access to the backup documentation to prove the information they’re seeing is correct?”
Strong, transparent accounting practices are fundamental for instilling buyer confidence. Investors rely on precise financial data to make informed decisions and project future performance. Any ambiguities or inconsistencies can deter potential buyers or lead to a discounted valuation. A well-organized financial system reflects a well-managed business, signaling stability and professionalism.
Comprehensive Documentation and Substantiation
To truly showcase the value and performance of a manufacturing business, owners need thorough documentation to support all aspects of their operations. This includes detailed records of inventory, assets, purchasing plans, customer contracts, employee records, and other elements contributing to the company’s success. Phillips emphasizes the need for owners to consider: “Can they prove all with the documentation and substantiate the company’s performance?”
The more organized and verifiable the information, the smoother the due diligence process will be, and the more attractive the business will become to potential buyers. Buyers conduct extensive reviews to confirm the veracity of all claims and numbers. Lack of documentation or disorganization can raise red flags, prolong the sale process, or even derail a deal. Phillips’s advice is clear: “The sooner the better” when it comes to getting this documentation in order. This proactive preparation minimizes surprises and builds trust.
The Role of Technology in Attracting Buyers
In today’s market, the level of technological sophistication within a manufacturing business also plays a role in its appeal to buyers, although perhaps not in the way some might assume. Phillips clarifies the primary concern of buyers regarding technology: functionality and reliability.
“Most buyers, like a private equity firm, for instance, have a portfolio of companies. They would like all those portfolio companies to have enterprise software that can work together, but it is unlikely to be the case. It is more common for those different companies to have their own unique systems,” Phillips explains. The key is not necessarily having a system integrate perfectly with a buyer’s existing portfolio from day one. Instead, the critical factor is having a modern, updated, and efficient system able to provide reliable information.
Phillips emphasizes the importance of data accuracy and accessibility for due diligence: “The most important thing for a company going to market with regards to technology is to have something in place which is modern, updated, and works efficiently in order to get reliable information. For example, third-party groups such as accountants who are doing a quality of earnings audit should be able to get into the system, find information, and run reports”.
A common issue Phillips encounters is outdated technology. “One of the things we will stumble across occasionally is a quality enterprise system within a company, but it hasn’t been maintained through the typical program requiring multiple updates throughout the years. We’ll find a system might be three to ten years out of date, and then it becomes a real issue with our ability to access it and prove it to be accurate,” he shares. This can significantly impede the due diligence process and erode buyer confidence.
Therefore, for manufacturing businesses preparing for a sale in 2025, investing in modernizing and maintaining their technology is a worthwhile endeavor. Phillips’s advice is practical: “It’s important for companies moving towards a sale to very diligently think about modernizing their technology. They don’t have to do anything fancy – it’s got to be accurate and it’s got to be up to date”. A well-maintained technological infrastructure demonstrates foresight and operational efficiency, highly valued attributes in any M&A transaction.
Positioning Your Manufacturing Business for a Successful 2025 Sale
The 2025 market for selling a manufacturing business is dynamic, with global economic factors and the issue of tariffs playing a significant role. For owners contemplating a sale, the message from John Phillips is clear: preparation is paramount.
By focusing on building a management team capable of operating the business independently, maintaining meticulous and transparent financial records, ensuring all operational aspects are well-documented, and having up-to-date and reliable technology, manufacturing business owners can significantly enhance their company’s appeal to a wide range of buyers. This includes those looking to expand their domestic manufacturing footprint and mitigate global trade risks. Starting these preparations early will position the business for a smoother, more efficient, and ultimately more successful transaction in the year ahead.
Walden M&A, with its deep market knowledge and extensive experience in guiding founder and family-owned businesses, stands ready to assist you in navigating these complexities. Our proven process helps ensure your manufacturing business is positioned to attract the right buyers and achieve the optimal value you deserve.
