After all the commotion surrounding the Inflation Reduction Act, the debt ceiling, and various other measures claimed to "assist" the economy, the outlook for 2024 appears largely unchanged.

While the immediate future may witness some turbulence, there are increasingly positive indications that a recession can be averted. If you happen to be contemplating the sale of your company in the near future, now might be an opportune time to commence preparations. Click here for tips on how to ready yourself, or if you prefer a more personalized discussion, feel free to contact us via email.

US Factory Activity Shrinks Again in May: ISM

The ISM Manufacturing PMI in the United States fell to 46.9 in May of 2023 from 47.1 in April, compared to forecasts of 47. The reading indicated a seventh consecutive month of contraction in the manufacturing sector, as companies "manage outputs to better align with demand in the first half of 2023 and prepare for growth in the late summer/early fall period. However, there is evidently increased business uncertainty in May," stated Timothy Fiore, Chair of the ISM Manufacturing Business Survey Committee. In May, new orders (42.6 vs 45.7), inventories (45.8 vs 46.3) and backlogs of orders (37.5 vs 43.1) contracted again. On the other hand, production rebounded (51.1 vs 48.9) and employment rose at a faster pace (51.4 vs 50.2), although companies continue to indicate near equal levels of activity toward expanding and contracting head counts, amid mixed sentiment about when significant growth will return. Also, price pressures decreased significantly (44.2 vs 53.2). 

Click here for the latest forecast: 

In any deal, worst-case scenarios often involve last-minute red flags that emerge due to undisclosed legal issues. Additionally, seller expectations can fluctuate on a monthly basis, driven by factors such as a gradual increase in the Profit and Loss statement or the imminent signing of a long-term contract by a customer—a prospect the seller may have been teasing for years.

However, by employing a simple yet powerful tool, one can avoid incurring costly legal expenses and simultaneously alleviate emotional strain during the final negotiations. This tool is known as a term sheet—an uncomplicated, written representation of the deal structure. It outlines the purchase price based on historical, current, and potentially forecasted sales figures, ideally supported by a comprehensive 3-5 Year Business Plan and a list of assets to be transferred. The term sheet may also address critical aspects such as key employee retention. While typically non-binding, the purchase price should be binding, subject to any discoveries made during the due diligence process.

Furthermore, it is worth noting that you have the option to reaffirm or negotiate a more stringent Non-Disclosure Agreement (NDA). Additionally, the effectiveness of the Confidential Information Memo (CIM) and the quality of financial disclosures provided will greatly influence the term sheet's ability to serve as an initial step toward a successful closing.

What Is a Term Sheet?

A term sheet is a nonbinding agreement that shows the basic terms and conditions of an investment. The term sheet serves as a template and basis for more detailed, legally binding documents. Once the parties involved reach an agreement on the details laid out in the term sheet, a binding agreement or contract that conforms to the term sheet details is drawn up.

Market Watch – EV Industry.

If your Company is involved in the EV industry, here is an overview of some investments currently taking place. 

An electric vehicle manufacturing plant is an industrial facility dedicated to the production, distribution, and recycling of electric vehicles (EVs).

Various components of EVs, including bodies, batteries, electric motors, and drivetrains, are manufactured, assembled, and tested at these facilities to create a final product.

In recent years, the nature and scale of U.S. manufacturing plants in the auto industry have evolved dramatically. Read the the full report here.

Are you considering a business transition and seeking to groom a capable manager who can facilitate a seamless transfer? Potential buyers will undoubtedly value the presence of a well-established management team that has proven its worth. To assist you in your quest, here is an article that offers guidance on finding the ideal team:

https://www.strategy-business.com/article/The-five-new-foundational-qualities-of-effective-leadership?utm_source=itw&utm_medium=NL20230615&utm_campaign=resp

This resource can provide valuable insights and strategies to help you identify and assemble a competent management team that will not only impress potential buyers but also contribute to the smooth continuity of your business.