Over the next decade, a massive shift will occur in the ownership of American manufacturing companies. An estimated 70% of privately-owned manufacturers, worth $10 billion collectively, will change hands as baby boomers retire. This presents both risks and opportunities for the future of manufacturing.
The Risks
With the boomer generation aging out, 60% of family-owned manufacturers don’t have an exit plan for transferring ownership. This puts millions of good manufacturing jobs in jeopardy, especially in rural areas where factories are often the lone major employer. Buyers in many cases are just acquiring these companies to consolidate operations, which frequently involves plant closures and layoffs. Plus, prime industrial real estate is being scooped up by developers of e-commerce warehouses and gentrified housing, shrinking America’s production footprint.
The Opportunities
The ownership transfer also allows for greatly increased diversity among manufacturers. Currently, minorities own only 13% of firms, with Black ownership around 2%. As existing small and mid-sized companies change hands, it opens doors for women and people of color to buy them. These diverse owners often have the manufacturing acumen from working previously in management roles.
Selling to employees, either individuals or groups, likewise keeps jobs local while spreading wealth. Worker cooperatives and Employee Stock Ownership Plans give staff an ownership stake. Nearly a quarter of ESOPs are in manufacturing already. With some transition assistance like feasibility studies and investment financing, employee buyouts of retiring baby boomers’ shops could preserve companies as community assets.
Recommendations
To fully capitalize on this pivotal point for manufacturing, supporters must take proactive measures:
- Early warning systems to identify at-risk, exit-lacking manufacturers before they fold, offering consultation and matchmaking with potential diverse buyers.
- Create manufacturing mentoring programs that pair retiring owners with young entrepreneurs, managers, or employees.
- Public funding and incentives to assist new minority and employee owners in overcoming capital barriers to acquisitions.
- Develop leadership training boot camps focused specifically on existing businesses where younger generations or non-family members are slated to advance.
Prometis Partners is here to help with any questions you have about exit planning for your manufacturing business. Get started by scheduling a meeting with Vincent Mastrovito today.
