Manufacturing & Industrial


Manufacturing & Industrial

Industry Overview

The manufacturing sector consists of companies upstream of supply chains, transforming raw inputs into new products through mechanical, physical, or chemical processes. This sector includes all industries which supply finished goods, or intermediate goods and components to wholesalers, retailers, or other manufacturing businesses. This sector’s services and outputs are estimated to impact almost 30% of all Economic activity in Canada.

The manufacturing sector depends on suppliers of basic raw materials. This includes mining companies, oil & gas companies, chemical producers, energy and natural resource industries, farming and agribusinesses. Most businesses in this sector are in their mature phase, however this may vary between industries. For example, medical device manufacturers may be in their growth phase; however, engine manufacturers are in their mature phase. Overall, the sector faces moderate to heavy regulation.

Despite a large variety of industries that make up the manufacturing sector, all are driven by the same general factors, namely those that effect the price of key inputs, and the demand for sector outputs on the global market. Specifically, key drivers for the manufacturing sector include the strength of the Canadian Dollar, Canadian GDP, manufacturing capacity utilization, and the price of key commodities such as oil, steel, or plastic.

Industry Drivers

Strength of the Canadian Dollar

Appreciation of the Canadian dollar would increase the price of domestic goods on the foreign market, leading to decreased demand from foreign economies for industry outputs. As exports account for nearly 20% of sector revenues, changes In the strength of the Canadian Dollar will be inversely correlated with industry growth and demand.

Growth of the Canadian Economy

Given its pivotal role within the economy, the manufacturing sector stands to benefit the most from macro-level economic growth. Increased economic activity and output will lead to across-the-board demand increases for industry services, leading to significant positive changes in the event of economic growth, and large-scale diminished demand in recessionary periods.

Commodity Prices

Sector participants rely on commodities such as oil, steel, and plastic to create products for downstream companies. As a result, increases in the price of commodities will impact all manufacturing industries heavily. The exact impact is ambiguous, as some firms may transfer price increases onto the consumer, while others may have margins directly impacted. Undoubtedly however, volatility in commodity prices will have an negative consequences on all sector participants as large short-term changes will not allow enough time for decision makers to react.

Manufacturing Capacity Utilization

Manufacturing capacity utilization is the percentage of the maximum potential capacity that manufacturing firms are currently performing at. A rise in this metric indicates less slack within the sector as individual firms ramp up production and services. When increasing, manufacturing capacity utilization directly suggests an increased growth in demand for industry outputs.

Recent Manufacturing Transactions

Selling a Manufacturing Company

The manufacturing sector is mature and is characterized by steady growth and moderate competition. Players in the sector depend on established relations with customers and suppliers. In addition, product differentiation and efficient management of working capital can have an impact on valuation during a sale transaction. As Canada’s leading private market M&A Advisory firm Beacon understands that selling a business is an important decision. A dedicated business owner not only seeks to extract maximum value from the sale of a business but also seeks to sell the business to a competent buyer who can continue the company’s legacy. Beacon has worked on over 100 valuation and M&A advisory mandates in the manufacturing sector, bringing extensive experience in deal negotiation to the table. Our experienced advisory team will assist your business in navigating the entire sell-side M&A process.

As an entrepreneur or business owner who is exploring a potential sale, it is important to understand some key factors specific to the manufacturing sector that might impact the likelihood of a potential sale. These are factors that determine business attractiveness for potential buyers and investors.

Contracts and Agreements – For companies that manufacture commoditized products with low scope of product differentiation, having exclusive contracts or long-term agreements with customers creates a moat around the company, thereby warding off competition. These contracts make a company more attractive to buyers due to a lower perceived risk.

Working Capital and Supply Chain – For all manufacturers, maintaining an adequate amount of working capital to meet immediate operational needs is extremely important. Supply shortages can often lead to delays in delivery and missed sales opportunities. This can be mitigated by maintaining a diversified network of primary and back-up suppliers that the business can rely on during disruptions. Having a geographically dispersed supply chain with no major dependence on a single supplier can reduce the risk of large supply chain disruptions. In addition, inventory tracking systems can help in tracking inventory on hand and make better procurement and budgeting decisions. This can reduce the risk of losses from inventory write downs due to obsolete inventory and also help in increasing operational efficiency.

Scope and Product Portfolio – Companies that have a wider scope of services or a wider product portfolio are generally considered more attractive. In addition, a lower dependence on any particular industry vertical reduces systemic risks involving industry performance. Companies with wider product portfolios can often achieve economies of scale and benefit from cross pollination across industries.

Machinery and Capex – The manufacturing sector is capital intensive. Machinery breakdowns and failures can lead to high maintenance costs, and delays in delivery. In extreme situations, this could even lead to loss in revenue, reputational damage, and loss of clients due to failure to deliver. A company must always maintain enough liquidity to be able to tackle short term capital obligations. During a sale, it is important to ensure that a new buyer will not require significant capital expenditure upon taking over the business. In addition, companies that have enough manufacturing capacity to meet an increase in demand and sales orders warrant a higher multiple due to growth opportunities.

With 40 years of combined experience serving businesses within Toronto, Ontario, and abroad, the Beacon transaction team has extensive knowledge and experience successfully working for several automotive companies from a variety of industries. Whether it be a valuation or sale, our team can provide expertise and resources found only at larger corporations, paired with the personalized touch of our M&A Advisory team. Contact us today to get in touch with one of our advisors.


Our Process

Valuation Assessment
Global Marketing Strategy
Buyer Screening
Structured Negotiation
Transaction Completion

Let’s talk.

We’re ready when you are.