Many hardware manufacturing company owners planning their exit strategy receive excellent valuations. In this guide, we discuss the valuation method you should use to determine the worth of your hardware manufacturing company as well as discuss in detail the steps involved with the sales process.
About The Hardware Manufacturing Industry
The hardware manufacturing industry produces a fair amount of the country’s hardware materials, such as hinges, handles, keys, and locks (Business Reference Guide). However, the threat of import competition continues to rise. Nevertheless, established companies should see substantial growth moving forward with little threat from new domestic competition (due to a high barrier of entry). Residential construction is expected to rise and should lead to growth for the hardware manufacturing industry in a post-COVID world. Here is a snapshot of the hardware manufacturing industry numbers and projections:
- There are approximately 596 hardware manufacturing companies in the U.S.
- There was a 1.0% annual growth for the hardware manufacturing industry from 2018 to 2023
- The Hardware manufacturing industry generates $10.3 billion in annual revenue
- The annual profit for the hardware manufacturing industry is $389.6 million
- Experts predict a sizable decline in annual growth (-.1.3%) from 2023 to 2028
A Market-Based Business Valuation for Your Hardware Manufacturing Company
Hardware manufacturing company valuations are dependent upon several factors, not the least of which is the company’s financial performance over the past 5 years. Specifically, prospective buyers consider your EBITDA and SDE. These numbers are applied to rule of thumb data (acquisition multiples) for the hardware manufacturing industry, which is as follows:
- Hardware manufacturing companies sold for approximately 2.38 times the Seller’s Discretionary Earnings (SDE)
- Hardware manufacturing companies sold for approximately 2.67 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
- Hardware manufacturing companies sold between 0.94 and 1.41 times the annual net sales
How to Sell a Hardware Manufacturing Company in 7 Steps
There are seven steps you should follow to help ensure a smooth and successful sale of your hardware manufacturing company. These steps are:
- Choose a broker
- Plan your sale strategy
- Prepare your legal and financial documents
- Market your company in a confidential manner
- Secure a deal with a letter of intent (LOI)
- Complete the due diligence map
- Close the sale and transfer company ownership
Step 1: Choose a Broker
A broker makes the sales process easy for you, whereas selling without an experienced business broker may prove a difficult challenge. Consequently, we strongly advise finding the right broker before you start the sales process. They can help you with all steps in the sales process and help ensure you receive fair value for your hardware manufacturing company.
Step 2: Plan Your Sale Strategy
Your broker will provide you with a business valuation. This number, which is your expected worth on the market, helps you plan your exit strategy. Specifically, you and your broker can determine your asking price, negotiating leverage, willingness to compromise on offers below your asking price, the current market condition, and the future market conditions. All of this helps you determine when (and for how much) you list your hardware manufacturing company.
Step 3: Prepare Your Legal and Financial Documents
Now, it is time to prepare your paperwork. Your broker can assist you with this by telling you which documents you need and where and how you can attain them. Specifically, you likely need to collect the following documents (if you have not done so already):
- Tax returns (as many years as possible)
- Profit and loss (P&L) statements
- Cash flow statements
- Balance sheets
- List of hardware and inventory
- List of existing customers
- List of employees
- A copy of your insurance policy
- A copy of your lease (if applicable)
- Real estate appraisal (if you own real estate that is included in the sale, such as a manufacturing facility and/or warehouse)
Step 4: Market Your Company in a Confidential Manner
In this step, you will seek a buyer. This is done differently than you may imagine. Rather than maximizing your exposure to seek the most amount of interested candidates, you will instead do so in a strategic manner that protects the privacy of the sale and ensures news of your sale does not leak. Of course, this is where a broker can make the sales process much easier.
Step 5: Secure a Deal With a Letter of Intent (LOI)
Your broker should also screen offers as they arrive, negotiate with potential buyers who are qualified, and secure a deal that allows you to maximize your sales goals. A deal is officially in place when you have a signed letter of intent (or LOI) that establishes the purchase terms, payment method, etc.
Step 6: Complete The Due Diligence Map
A due diligence map is a way to ensure the due diligence process goes smoothly without the buyer dragging their feet. This is important as all too often things occur in a buyer’s life that may make them not want to follow through on the deal (i.e. divorce). With a due diligence map, you can ensure you move to close the sale sooner.
Step 7: Close The Sale and Transfer Company Ownership
The last steps are to schedule and attend closing and transfer ownership of the company to the buyer. Of course, during closing, you will also verify that the payment has been successfully sent. The transfer of your hardware manufacturing company may continue after closing.
Are You Ready to Start Your Exit Strategy?
Exiting your company is a big decision and an important life moment. To ensure a smooth process and get the most for your hardware manufacturing company in a sale, we recommend working with Sigma Mergers and Acquisitions. Our business brokerage and consultancy team has years of experience and has helped more than 600 businesses sell for fair market value or greater. Contact us today to schedule a free consultation.
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!