While merger and acquisition activity for industrial manufacturing was strong in the first half of 2022, it is likely to face challenges in the second half of the year.
Still, deals will continue, and PricewaterhouseCoopers has identified revenue growth, a resilient supply chain and margin expansion from digital automation as key M&A drivers.
With digital automation as a central driver, the message is clear: Plastics manufacturers looking to maximize their M&A valuation need to leverage core capabilities of a modern enterprise resource planning system. Let's look at five factors integrally linked to the ERP system that private equity [PE] firms consider when assigning an M&A valuation.
Portfolio visibility. PE firms want manufacturers to provide portfoliowide visibility to potential acquirers. These firms will evaluate whether systems can scale across all manufacturing locations and provide a single, 360-degree view of all accounting, finance and manufacturing activity.
PE firms I've worked with say that monthly closing statements need to be automatic with no manual workflows. That's why having a system that relies on the same database for accounting, finance, and manufacturing data is critical.
Reliable real-time production and process monitoring. PE firms will drill down into how a system collects, aggregates, analyzes and uses data to improve operations. They want evidence of how advanced approaches to using data are working to deliver more value, such as leveraging real-time data to identify quality levels, fuel automated statistical process control (SPC) analysis, understand scrap, identify cost variances and monitor the physics of machinery — for example, in plastics, measuring the heat, vibration and viscosity levels of melted material.
PE firms drill down to the asset level to verify there are no inflated figures on balance sheets regarding long-term assets.
Enterprise-ready quality management and compliance. Seeking to minimize risk, PE firms want to run audits of production operations globally to see that any quality reporting and supplier quality management are consistent. Additionally, they will look for a breakdown of regulatory compliance by region and nation.
Clear, focused KPIs. PE firms want to see a reasoned, thoughtful approach to defining analytics and customized key performance indicators (KPIs) for running a manufacturing business. But too often, manufacturers either have too many metrics and jam-packed dashboards of KPIs that rarely all get used, or they are no metrics except for an Excel spreadsheet to track delivery dates manually. Both approaches are prone to errors.
By contrast, applying real-time production and process monitoring data to ERP-based analytics can help manufacturers select the most relevant and valuable metrics for measuring their performance.
Streamlined employee onboarding. Given the chronic labor shortages that manufacturers face, PE firms will look at how intuitive an ERP system is and how quickly new employees can be brought up to speed using it. With the need to go beyond the office to reach workers on the shop floor, employees working remotely and sales reps on the road, it's now table stakes to have an ERP system that can run in the cloud and on any mobile device connected to the web.
By addressing these five key factors, plastics manufacturers can achieve the digital automation that will give PE firms confidence and lead them to maximize their M&A valuation, even in a slower market.