Despite a downturn in industry performance and less than optimal projections, chemical product manufacturing company owners are still receiving intriguing valuations and there is still relatively high demand. If you are planning your exit strategy, then this detailed review of the valuation and sales process is for you.
About The Chemical Product Manufacturing Industry
Unfortunately, many economic experts predict a decrease in the size of the chemical product manufacturing industry as chemical imports increase and the domestic demand continues to decline. However, there are still some sectors of the industry that may continue performing well. For many owners, however, due to the risks involved, the growing negative perception of chemical product manufacturing companies, and the potential for an industry decline, now is the best time to sell. Here are the most recent chemical product manufacturing industry numbers and projections.
- There are approximately 2,028 chemical product manufacturing companies in the U.S.
- There was a -1.1% annual growth for the chemical product manufacturing industry from 2018 to 2023
- The chemical product manufacturing industry generates $43.3 billion in annual revenue
- The annual profit for the chemical product manufacturing industry is $1.5 billion
- Experts predict a sizable decrease in annual growth (-1.2%) from 2023 to 2028
What is a Market-Based Business Valuation for a Chemical Product Manufacturing Company?
Your broker may use the term “market approach” when describing the valuation process. This simply means they are calculating your fair market value, the amount you will likely receive on the market. Specifically, your broker will calculate your SDE and EBITDA from the financial reports you provide and apply them to industry rule of thumb data. Although, keep in mind, this is just a first step, and adjustments based on your growth potential, location, unique advantage, and reason for selling are included as well. The rule of thumb data for the chemical product manufacturing industry is as follows:
- Chemical product manufacturing companies sold between 3.63 and 5.51 times the Seller’s Discretionary Earnings (SDE)
- Chemical product manufacturing companies sold for approximately 3.65 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA). However, companies with larger profits generally sell for far more.
- Chemical product manufacturing companies sold between 0.75 and 1.76 times the annual net sales
How Can I Sell My Chemical Product Manufacturing Company?
We strongly advise working with your business broker to develop a customized sales solution, rather than searching for a cookie-cutter sales approach. However, there are typical steps that are involved with the sale of chemical product manufacturing companies. These steps include the following:
- Choosing a broker
- Preparing for the sale
- Finding a qualified buyer
- Completing due diligence
- Closing the sale
Choosing a Broker
It is strongly advised to work with an experienced business broker who has access to numerous channels where potential buyers are located. Your broker can provide valuable assistance throughout the entire process, including an accurate market-based business valuation and guidance during all stages of the sale. Most importantly, they ensure confidentiality while searching for a buyer who is willing to pay fair market value and meet your other sales objectives.
Preparing for The Sale
Your market-based valuation determines how much prospective buyers are willing to offer (and subsequently pay) for your chemical manufacturing company. Your broker can also assist you in identifying the best time to sell, as it is crucial to sell when the market is favorable and you can receive the maximum value for your business. Also, preparing for the sale involves the preparation of your financial, legal, and organizational information beforehand, including:
- Tax returns
- Profit and loss statements
- Cash flow statements
- Balance sheets
- Inventory reports
- Fixed asset reports
- Equipment maintenance reports
- Business licenses
- Insurance policies
- Lease agreements
You will also need to disclose any information related to workplace accidents in recent years. Be sure to review all incidents (if applicable) and collect and organize this information before you begin the marketing process.
Finding a Qualified Buyer
If you were to simply start searching for a buyer without any preparation or planning, then you would most likely fail and endure a stressful process (as far too many business owners do). However, since you are prepared, finding a buyer is much easier. Moreover, you can save yourself a lot of stress and time by utilizing your business broker during the marketing stage. Specifically, your broker is able to find a qualified buyer and secure a deal (via a signed letter of intent) by leveraging their connections, contacts, databases, and networks.
Completing Due Diligence
The good news is that you have found a buyer who has already signed a letter of intent (LOI), but there is still a significant amount of work that needs to be done by both parties. During the due diligence stage, the buyer will likely request to review all details of the purchase, ensure that all legal requirements are met, verify financial information, and conduct a walk-through of your chemical product manufacturing facilities.
This is a relatively open process, and the buyer may request the documents they need to move forward with the purchase agreement. However, this process should not drag on for months (as it often does). Both the buyer and the seller should work in an organized and structured fashion to move toward closing as quickly as possible. This is where your broker comes in; they ensure both parties work efficiently so the sale can close sooner.
Closing The Sale
Lastly, you will close the sale. This starts with scheduling a time to meet. In particular, this must be a time where all parties involved can attend, such as the seller, the buyer, both respective attorneys, and any financial representatives that may attend. In some cases, the broker may attend as well, although this is not always the case. During closing, the following will take place:
- The buyer and seller review and sign the purchase agreement
- The buyer transfers the funds for the purchase to the seller
- The seller begins the ownership transfer process, which may continue beyond the closing date
Sell Your Chemical Product Manufacturing Company With Confidence
Sigma Mergers and Acquisitions helps businesses within the Chemical Product Manufacturing industry sell for fair market value (or higher). We can start with a consultation and provide you with a free valuation of your business (once you provide us with the necessary documents). So, why wait? Contact us today to get started.
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!