M&A And The Furniture Manufacturing Industry

The furniture manufacturing industry includes the design, production, distribution and sale of household, institutional and office furniture and related products. Global furniture sales are expected to increase 5% each year through 2025. According to Dun & Bradstreet, the countries that are home to the most furniture manufacturing companies are Brazil (72,063), China (62,832, Poland (22,389), with these three accounting for more than half of the world’s furniture manufacturers (54.9%).

Mergers and acquisitions deals in the furniture manufacturing industry are driven by a variety of factors:

• Healthy economies and housing trends
• Major retailers looking to tap new markets
• Vendors seeking category and price-point expansion
• Foreign manufacturers looking to grow geographical production
• Increased investor confidence due to Millennials approaching their prime spending years
• Family-owned businesses with aging management and no succession plan

Consolidation Within the Industry

Furniture needs are evolving and the industry is seeing overlap between residential, hospitality and commercial projects, creating increased appetite for acquisitions.

Strong, existing industry players are known to utilize M&A to expand their global footprints, product lines and price-point offerings. Building out helps companies to gain market strength and enhance shareholder value.

In some regions, labor shortage issues present a challenge. Therefore, companies with trained and skilled labor are able to command a premium in a sale.

Vendors that design furniture but outsource it from overseas are seeking competitive advantages. And those overseas producers are looking to increase their global presence. Geopolitical factors have a good bit of influence on how prosperous these M&A transactions can be so they are contingent upon global economic situations and trade relationships.

Large furniture companies that have a cash surplus from operations, reduced taxes, and funds recouped from offshore business, have liquidity that drives them seek out strategic acquisitions.

The Role of Private Equity

Private equity investors look to the furniture industry to create value within vendors and retailers, as well as add-on acquisitions that create platform companies. In the case of furniture production, manufacturers have assets that can be leveraged in a purchase, especially for the upholstery sector.

Consolidation at the retail level also increases investment interest in the furniture industry. As more retail store locations close their doors, private equity investors see opportunities for new retail concepts to replace them. And when larger investors show interest, smaller investors take notice. Consolidation also creates synergies of shared office, logistics and warehousing costs, which can lead to higher profit margins.

Value Drivers for Furniture Manufacturing Companies

• Online sales: In today’s world, the majority of furniture sales now take place online. Businesses must have a compelling and secure e-commerce platform and a strong online advertising and digital marketing presence in order to remain competitive.
• Factory maintenance: The actual manufacturing conditions are a key component in valuations. This includes equipment service and maintenance, inventory, and overall environment. 
• Vendor relationships: Having a variety of healthy, trusted vendor relationships shows buyers that profits can be expected to remain steady due to changes in ownership.
• Skilled staff: The creation of high-caliber products and a company’s reputation hinge upon the craftsmanship and retention of the staff. Satisfied employees produce consistent quality, which translates into higher sales numbers.
• Safety measures: The furniture manufacturing industry is more prone to employee injuries than most because of its labor intensiveness, making on-the-job injuries a costly expense. Highly detailed and enforced safety plans can save businesses money, making prospects less risky and more appealing to investors.

Careful M&A Approach

A major challenge that furniture companies run into with M&A transactions is maintaining the day-to-day operations of the business throughout the course of a deal. A merger or acquisition can be a significant distraction that can put strain on financial departments and senior management, putting the everyday work on hold. For this reason, buyers typically look to target add-on companies. It is wise for business owners seeking M&A strategies in this industry to enlist the experience and guidance of a reputable M&A firm to facilitate a value-driven deal that allows for the sustained success of the company and takes advantage of proper market timing.

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If you are a business owner and would like to consider ways to grow or sell your company, our M&A experts at Benchmark International are waiting for your call. We can even assist you with exit planning for your retirement. We look forward to hearing from you.