Awning manufacturing and installation companies are taking advantage of recent residential and commercial growth
Traditionally, the commercial real estate sector has driven the awning manufacturing and installation industry. While commercial projects are still the primary revenue sources for these companies, an increase in residential work has proven substantial. According to a 2017 report by Grand View Research, the awning industry was approximately $2.4 billion in 2015. Given the growth in both the commercial and residential markets, that figure is expected to eclipse $3 billion by 2020, with 50% of that coming from the residential side.
As new commercial real estate development continues to progress, that piece of the awning market has steadily increased. Obviously a portion of this growth due to new construction, but for every new awning system that is installed on a building, there is a maintenance job coming to repair or replace that awning a few years down the road. What is really driving industry growth, however, is the bump in residential work. Homeowners have experienced a growing interest in quality outdoor living spaces – not just having a patio set on the porch, but a true outdoor living area. A critical piece to these new additions is some sort of shade system, and residential awning installation has grown as a result.
Given the positive market trend and steady recent growth in the awning industry, coupled with the traditional cyclic nature of construction, now is a great time to sell an awning manufacturing and installation company while the market is hot. The first step in this process is to find out how much your business is worth. We have provided some basic formulas you can use to estimate the value of an awning business and get a rough idea of where you stand. Keep in mind, however, there is much more to putting an accurate value on your business than these simple guidelines. A professional business broker can analyze your entire business operation and give you a true market valuation.
- 5x-4.5x SDE (Seller’s Discretionary Earnings) + Inventory
- 75% Total Revenue + Inventory
With a rough value estimate in mind, you might be wondering what you can do to increase the value of your awning business. Obviously, growing revenue and profitability will add value, but there are also other important attributes specific to your industry that not only improve your value, but also you marketability. Our firm has valued and sold numerous businesses like this – so we put together these five tips that can increase the value and attractiveness of your company.
Awning manufacturing and installation companies that receive the vast majority of their revenues from new construction projects are not going to be valued as favorably as those that have a healthy repair and replacement revenue segment. While new construction jobs are fantastic and tend to be larger projects, the cyclical nature of construction – especially commercial construction – can create a sense of guarded optimism with buyers. However, if your business has a strong foundation of repair and replacement work, the new construction risk can be mitigated somewhat.
Customer concentration is especially concerning in awning manufacturing and installation companies because it oftentimes comes with the heavy influence of new construction. Some companies fall in the trap of riding the new construction wave, and inherently will start to focus on one or two primary costumers that are sending them consistent work. As great as this impact might be for the owners in the short-term, when it comes to valuating and selling the company, it can be shockingly negative. Buyers want to see businesses spread their customer risk out, so that the loss of one or two accounts won’t devastate your company.
Buyers also evaluate the operational risk of a business, in additional to financial factors. A company that has distinct departments with dedicated employees performing specific responsibilities is going to be valued more favorably than a business with employees multi-tasking with no clear duties. Specifically in awning companies, buyers want to see dedicated estimators/salespeople who quote and sell the jobs. Then the jobs are handed off to the production department that has specific employees doing fabrication or sewing. Finally, there are the install crews who handle assembly and installation. Companies that have a primary group of employees that move between multiple job responsibilities day-to-day are not going to be as attractive to buyers as those companies with more operational structure.
Be leery of selling your business in a year that may have been disproportionately propped up by a large project. In businesses like awning manufacturing and installation, this is a legitimate concern. If your business typically has a large project or two in a year and you can show a consistent history of securing these types of jobs, then it’s less of a concern. However, if you just happened to land a big project and decided to sell your business now based on the increased revenue you show, you can be sure that buyers will discount your business based on that anomaly. While it’s positive to demonstrate to buyers that your company can obtain and perform those larger projects, don’t expect them to pay a premium based off one abnormal year.
Vertical and Horizontal Integration
Another value-builder in the minds of buyers is integration. If you have the opportunity to add a service or product to your company that you are currently outsourcing, it can add not only a real cost-savings and improve the bottom line, but also impact the overall impression buyers have of the uniqueness and stability of your business. A vertical integration such as powder coating and painting is a good example. Additionally, think about other complementary products or services your customers need that are closely related to awnings. Electrical sign manufacturing comes to mind as a potential horizontal integration for an awning business. Anything along these lines you can integrate into your company will ultimately add value and distinctiveness with buyers.
Hopefully you can utilize these five tips to analyze your own operation and find ways to increase its value and marketability. Today’s market conditions for these types of businesses, along with more and more financing available for acquisitions, make this a tremendous time to consider selling your business. Whether that’s in the cards for you today, or you still need some time to get your company ready to sell, a professional business valuation is a great resource to have. That’s why we always offer business owners a no cost, no obligation business valuation before doing anything else. Feel free to contact us today and we can get that process started for you.