While none of these should preclude an acquisition, we’ve come to witness several variables that suggest that an acquired company may need extra help. These include:
- Are the finance employees familiar with using your preferred (or an analogous) ERP system, or will they be learning to use a sophisticated system anew?
- Will the target be required to adopt new revenue recognition standards post-acquisition (the best example being the migration to percentage-of-completion accounting from recognizing revenue at shipment)?
- Do they update their cost standards (and their “shop” or “machine” rates) annually?
- Are they able to (and do they) pass through price increases as raw material costs increase, or will doing so be a shock to their customers?
- Can they or do they reprice existing work if volumes fall below quoted volumes, or will doing so be a shock to their customers?
- Do they operate to a manufacturing plan – in other words, do their customers provide lead times with the factory being scheduled weeks in advance – or do they take orders and fit jobs in as machines become available?
- Do they impose minimum job sizes and are those job sizes consistent with driving manufacturing efficiencies?
- Do they have a spares (spare parts) management program with recurring replenishment, or are spare parts acquired ad hoc as machines go down?
- How old is their machine/press fleet and is it relatively homogenous in selected brands or do they have machines from multiple manufacturers?
- Are their production lines and quality processes largely automated, or do they rely on manual labor and inspection?
These are but a handful of examples – all of which tie directly to financial performance – that we’re happy to assist with as you underwrite your manufacturing platform.