The injection molding industry is performing well and has some interesting growth opportunities, which lead many experts to project growth over the next five years. We have put together this guide on how to sell an injection molding company for owners who are contemplating an exit from their role as owner.
About The Injection Molding Industry
This industry involves injecting molten material into a mold to create various types of parts in volume. The industry has excellent expansion opportunities as many manufacturers are embracing new injection molding ideas and concepts.
How to Value an Injection Molding Company
Injection molding companies typically sell between 4 and 6 times the company’s earnings before interest taxes, depreciation, and amortization (EBITDA). This is higher than many other manufacturing-related industries.
A market-based business valuation from a licensed business broker is highly recommended to determine the value of your injection molding company. Along with specific considerations such as your growth potential, location, workforce quality, and reason for selling, your business broker may apply the following rule of thumb data to your SDE, EBITDA, and annual net sales:
- Injection molding companies sold between 1.79 and 5.22 times the Seller’s Discretionary Earnings (SDE)
- Injection molding companies sold between 2.99 and 8.00 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
- Injection molding companies sold between 0.57 and 1.39 times the annual net sales
How to Sell an Injection Molding Company
We recommend a personalized sales strategy from a reputable and experienced business broker. However, these five steps are common in the injection molding industry. By following these five steps, you can help ensure a successful sales journey.
- Determine your company’s worth
- Prepare your sales strategy
- Market your company in a confidential manner
- Accept an offer and complete due diligence
- Close the sale
Determine Your Company’s Worth
An inaccurate market-based valuation is one of the primary causes of delays and an inability to sell among injection molding company owners. It is important to properly establish the worth of your company based on recent sales data in your industry and your company’s financial performance. To ensure you have an accurate value, we recommend a professional business valuation from a licensed and experienced business broker.
Prepare Your Sales Strategy
There is a lot of work to do between the time you receive your valuation and you seek a buyer. Notably, you will need to establish your goals, collect your injection molding company’s documents, prepare your sales memorandum and video interview, and craft your non-disclosure agreement. Here is more information about each of these actions:
- Define your sales goals – Do you simply want to sell for the highest bidder no matter the terms? Or are there other goals that are important? For instance, perhaps you feel it is important to find a buyer who does not require seller financing or training from the seller.
- Prepare your company documents – You will need to prepare all of your company’s documents. This includes your tax returns, profit and loss (P&L) statements, business license, patents, employee lists, and more.
- Craft your sales memorandum and video interview – The sales memo, also called a confidential information memorandum or CIM, and the video interview are shown to potential buyers and highlight the value of your company.
- Create your non-disclosure agreement (NDA) – lastly, you will need to create your NDA, which potential buyers will sign to ensure they do not disclose private and privileged information about your injection molding company.
Market Your Company in a Confidential Manner
By taking the time to properly prepare, the marketing stage should be much easier. When marketing your company, your business broker should only leverage private sales channels, unless you decide to open the sale up in a public manner (which is not typically recommended). In doing so, your broker may leverage the following:
- Competitors within your industry who may have an interest in acquiring your company
- Private databases of potential buyers to gauge their interest in your company
- Personal connections and contacts (i.e. other business brokers who represent buyers)
Accept an Offer and Complete Due Diligence
After a signed LOI, you can begin the due diligence process. This allows the buyer the opportunity to review your company in more detail before they purchase. This also helps you (the seller) feel more confident that the buyer is well-positioned to take over as owner and understands the inner workings of the company. Notably, during due diligence, the seller will need to provide the buyer with all company documents and information.; this may involve answering a series of questions related to the injection molding company’s performance and operational procedures Weekly meetings may also be required to ensure the process moves along smoothly. After the buyer feels comfortable and is well-prepared to take over, then the sale closes (see below).
Close The Sale
Your business broker and attorney can create the purchase agreement for you and the buyer. This often uses the letter of intent (LOI) as a template, although some changes may take place based on the results of due diligence. During closing, the buyer, the seller, attorneys, CPAs, lenders, and escrow agents may attend. The buyer completes the payment, and the seller confirms that they have received it.
They then start the transition, which may involve updating legal information, notifying employees, etc. The seller will also need to fulfill their obligations as it pertains to training the buyer. This is different for every seller, and the buyer and the seller discuss the terms of training during negotiations. Some buyers require little training, whereas others may require extensive involvement from the previous owner for up to one year.
Start Your Sales Journey with an Accurate Business Valuation
Selling your injection molding business can be both a daunting and rewarding journey. Navigating today’s complex market can feel almost impossible. At Sigma Mergers and Acquisitions, we can help you take the first step with a comprehensive business valuation. And if you choose to list with us, the valuation is completely free.
Our Dallas business brokers serve a wide range of industries and provide accurate valuations to businesses across all 50 states. If your injection molding company generates at least $1 million in revenue and is located in one of the states we serve, our experienced team is ready to discuss how we can support you as your trusted business broker.
With our proven Sigma DealMap™ process, we confidently guide you through every step of the sale and work to sell your injection molding business for maximum value. When you’re ready to sell, trust Sigma Mergers and Acquisitions to deliver results that meet your goals and exceed your expectations.
Scot Cockroft is the Owner & President of the #1 ranked Business Brokerage, Business sales and M&A firm in Texas. Scot has been named Named Deal Maker of the Year by Dallas Business Journal.
He is committed to a “different” type of business brokerage firm, one that is NOT about a sales pitch but, rather, results! In short, a business brokerage firm that is committed to performance-based compensation. Scot believes in these principles as well as a candid honesty with clients. His candid style often takes buyers and sellers by surprise, but is often what assures successful connections between the two.
Feel free to reach out!
