Manufacturing M&A May Benefit from Changes in Tax Policy & Economy

September 25, 2025

Steps To a Successful Transaction in the Manufacturing Industry

Key Takeaways:

Manufacturing companies attract buyers with scalable growth, strong assets and tax benefits.
Sellers should improve financials, update assets and plan early with trusted advisors.
Both sides should prepare for complex negotiations where risks, valuations and working capital expectations shape the final outcome of a deal.

Even before the enactment of the One Big Beautiful Bill (OBBB) tax legislation, 2025 was shaping up to be an active year for manufacturing M&A. A surge in deals to $92 billion nationwide in 2024, driven in part by technological advancements and reshoring efforts, set the stage for continued strength in 2025. The many business-friendly provisions of OBBB — including the return of 100% bonus depreciation and the permanence of tax incentives that were set to expire this year — may further fuel activity in the manufacturing M&A arena before the end of the year.

For buyers and sellers alike, this represents new opportunities that should be approached with clear-headed planning and a commitment to follow certain steps. Whether you are on the buy side or the sell side, you have the same critical factors to consider.

Buyers and sellers of manufacturing companies are mirror images of each other, as they are looking at the same qualitative and quantitative factors, but from different perspectives. For instance, at the negotiating table, the buyer and seller may be focused on the same risk — say, concentration in customer groups. The buyer will note that this presents a risk that should be reflected in the selling price of the company. The seller will illustrate how that risk can be managed and mitigated.

Consequently, it’s important for sellers to go into the process with an understanding of what buyers are looking for and what information they need to move a deal forward.

Both must make important first steps in the M&A process to get to this point.

Why Buyers Want Manufacturing Companies

Manufacturing companies are attractive acquisitions for several reasons:

Manufacturing companies often don’t require specific education, licensure, or credentials as a prerequisite for their key employees. This enables them to recruit talent from a more broad-based labor pool compared to companies in other industries.
Banks are typically more willing to lend on manufacturing deals because the buyer is acquiring assets that can be collateralized, such as equipment and machinery.
Opportunities to elect bonus depreciation and/or utilize other tax incentives due to the nature of the assets often subject to sale (equipment, machinery, vehicles, etc.) enhance the value of the acquisition. If the buyer already owns a manufacturer, they may be looking to buy another that can help them achieve overhead efficiencies. They can capture economies of scale through spending power, automation and consolidated overhead costs. In Kansas, the benefits are enhanced by a less expensive operating environment and access to logistical highways.
Private equity buyers often purchase manufacturing companies to access shared customers or diversify products and streamline their supply chain with existing holdings.

In conclusion, buyers covet manufacturing companies because they can be scalable and are often businesses that can grow quickly and efficiently through acquisitions.

Recent trends indicate that private equity buyers are looking at smaller manufacturers than they typically have acquired in the past. Additionally, manufacturers who are adding service lines are drawing more attention from buyers. Service lines could include such things as ongoing maintenance contracts.

Important Steps for Buyers

Initial steps that will help buyers maximize their opportunities for an acquisition include:

Define the strategic alignment that will guide the process if you plan multiple acquisitions. Are you looking for companies that manufacture similar products that could be consolidated into a single diversified product line? Or are you looking for manufacturers that produce different products but sell into the same customer groups? Defining the goal of your strategic alignment will help move the process along faster.
Perform a readiness assessment. If you haven’t owned a manufacturing company before, do you understand what you’re getting into? Do you have the knowledge and experience to run a manufacturing operation, or do you need to acquire a company that has a strong leadership team in place — and that will stay in place?
Perform a risk assessment. Material costs for commodities will subject you to national and foreign markets for the price of steel, metal, wood and fuel. Manufacturing is capital intensive, so you may work through a lot of cash flow. Additionally, gross margins and profitability are thinner in manufacturing due to the costs of labor, material and machinery. Regulatory compliance is a factor in many industries, ranging from OSHA to the EPA. Also, unions are more common in manufacturing environments, which can add complexity to costs and payroll.

Important Steps for Sellers

Initial steps that will help sellers maximize their opportunities for an acquisition include:

Evaluate the condition of your assets. Is your equipment outdated, especially technology-based systems? If so, it will affect the company’s viability as an acquisition target.
Estimate the value of assets that are included in the sale. For example, if the equipment is no longer depreciable, it can depress the value of the company in terms of tax assets.
Evaluate the overall shape of the company’s financials and the quality of the financial records. Apply standard costing methods on the cost side to evaluate the degree of margin suppression the company may have. Standard costing is a process by which you’re consistently updating the way costs are measured, applying standardized values.
Obtain a business valuation to make sure your expectations about the company’s selling price are aligned with reality. If you obtain a valuation in advance of entering the sale process — say, three to five years out — you have time to focus on the key value drivers and make improvements that will drive up the company’s value.
Assemble a team of advisors who will help you navigate the sale process. The team should include an attorney, accountant, banker, investment banker and a wealth advisor.

Managing Expectations

Sellers must add one more important step to their preparation — managing their expectations. What you sell for versus what you walk away with in terms of cash are very different numbers. In manufacturing, the walkaway figure will be considerably less compared to non-manufacturing companies due to several factors:

You will be subject to a higher tax bracket because you’re selling equipment that’s already depreciated.
You will likely be selling assets for an asset sale, and you’ll have to pay off any debt associated with them.
You will negotiate with the seller the amount of working capital to be left in the business. Manufacturing companies need to have more working capital on hand for future operations, so the seller must leave more money in the business than in other industries.
You may negotiate an earnout period or contingency payments that can stretch the payment term out an additional three to five years. Hence, the payment you receive at closing serves as a down payment, of sorts, on the final figure.

As a result of these factors, your liquidity on the sale can be significantly less than in other industries, making it critical to get out in front of these issues several years in advance to have time to adequately plan.