Written by: Heritage Capital Group Metals Team
As 2024 comes toward a close, strategic buyers continue to show strong interest in high-quality companies in the metal service center, processing and fabrication sectors in North America. At the same time, metal commodity prices, macroeconomic factors and geopolitical issues are affecting the mergers and acquisition market. For instance, the sharp decline in deals in 2020 was a direct consequence of the COVID19 pandemic.
The number of deals completed is driven by the appetite for growth through M&A among companies in the industry and, in certain cases, to a lesser degree, by institutional and private equity buyers seeking to invest in certain portions of the metals supply chain. Each potential buyer has its own acquisition criteria and perspective on what constitutes a high-quality target.
Common themes emerged from discussions with hundreds of strategic and financial buyers interested in growing via M&A. Whether you are a buyer or seller, here are five of the most prominent qualities that acquiring companies find most attractive in an acquisition target.
1. Management depth and succession. Companies with welldeveloped succession plans for senior management and a focus on bringing the next generation of talented employees into decisionmaking positions are in the best position to enhance their value. While operational efficiency and cost-effectiveness are essential, having depth within the management team is a top value driver. This depth should span all aspects of the business, from senior management to purchasing, sales, operations, safety, administrative functions, technology, and finance.
2. Culture. The acquisition target’s culture will be immediately apparent to any potential buyer evaluating the deal. The business culture should be consistent across all personnel, from shop employees to senior management. Examples of a strong culture include robust safety programs, commercial excellence, operational efficiency and financial strength. A strong and effective culture manifests itself in areas like high levels of employee retention and customer satisfaction.
3. Facilities and equipment. The facilities of the best-run companies are efficiently laid out, clean, well lit, and not overcrowded with excess inventory or idle equipment. Thoughtful investments are made in latemodel value-added equipment, prioritizing safety and environmental stewardship. There is existing room to grow or plans to expand, no deferred maintenance needed on the equipment, and no environmental issues associated with any properties.
4. Systems and processes. Most buyers tend to seek out well-run companies, not turnaround projects. Besides advanced distribution, material handling and processing capabilities, the best acquisition targets use up-to-date ERP systems and have a professional CFO or controller managing the accounting and finances, producing accurate and timely reports about the financial health of the company. Other examples of well-run companies include a documented quality management system, an active safety and health management program, an environmental management system, and a human resources department that complies with all employment laws and regulations.
5. Market reputation and customer relationships. A company’s reputation and strong customer relationships are typically the result of decades of demanding work by the company’s management and employees, who consistently perform to high standards and provide service excellence that customers can rely upon.
While 2024 has presented challenges from flat demand and pricing declines, the Metals Team at Heritage Capital recognizes that macro M&A activity is beginning to show signs of increasing. There is broad consensus that the correction in metal pricing has run its course and that the interest rate cut by the Federal Reserve enacted in September will positively impact all parts of the market—buyers and sellers alike. Both are positive indicators for a more robust M&A environment.
In summary, companies that invest in people, culture, facilities, equipment and technology while delivering consistent service excellence are best positioned to adeptly navigate these macro trends and are the most attractive to buyers.
Heritage Capital Group clients are owners of privately held companies with enterprise values up to $250 million, spanning many industries and stages of development. Offices are located in Jacksonville, Florida, and Savannah, Georgia. heritagecapitalgroup.com.
