Machinery manufacturing companies are selling for excellent value. If you are the owner of a machinery manufacturing company and are contemplating your exit from the company, then this guide is for you. We discuss the valuation and sales process to help ensure you receive fair market value and sell in a stress-free manner.
About The (General Purpose) Machinery Manufacturing Industry
The machinery manufacturing industry creates mechanical parts used for machinery. This can include gears, levers, and other common machine parts. This often involves metal shaping, stamping, bending, forming, and machining. Due to the complexities involved with the machine manufacturing processes, buyers should have experience with the industry. Although, due to the high degree of specialization, owners can enjoy a high barrier to entry that keeps away start-up competition. If you find the right business relationships, this industry provides great profits and stability.
How to Determine The Worth of Your Machinery Manufacturing Company
A market approach is recommended when you sell a machinery manufacturing company. This determines the worth of your company on the market. Specifically, it entails the use of rule of thumb data for your industry, which is as follows:
- Machinery manufacturing companies sold between 2.81 and 4.10 times the Seller’s Discretionary Earnings (SDE)
- Machinery manufacturing companies sold between 4.04 and 10.72 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
- Machinery manufacturing companies sold between 0.63 and 0.81 times the annual net sales
Your broker will calculate your seller’s discretionary earnings (SDE) from the financial documents you provide them for your valuation. Of course, adjustments may apply to the multiple based on your location, growth potential, unique industry advantage, and other non-financial factors.
The 4 Stages of The Sales Journey for Machinery Manufacturing Companies
Below is a detailed review of the four primary steps involved in the sales journey. The information is relatively general and broad as the sales process should be personalized. We strongly encouraged speaking directly with a business broker to learn what your sale may entail. With that said, the four stages you can expect are:
- Plan and prepare
- Find a buyer
- Due diligence
Plan and Prepare
You can make the sale process much easier by taking time before you list your company for sale and preparing. This involves several key steps, which include:
- Choose the right business broker: As mentioned, your broker assists with most steps in the sales journey, from helping you determine the worth of your machinery manufacturing company to ensure a smooth closing and ownership transfer.
- Receive a professional business valuation: Your market-based valuation determines how much prospective buyers are likely to offer. This gives you more control and allows you to make informed decisions throughout the sales process.
- Determine when to sell your company: You should sell your company when the market is most favorable, a time when demand for machinery manufacturing companies is at its highest.
- Collect all of your company’s documents: Lastly, you should collect all of your legal, financial, and operational documents. This includes but is not limited to tax returns, profit and loss statements, business licenses, patents, insurance policies, and operating procedures.
The purpose of the detailed planning and preparation process is to minimize the risk of complications or setbacks during your sale journey. You also ensure you understand your company’s value and find maximum value on the market.
Find a Buyer
A business sale is unlike any other type of sale. In fact, in some respects, it is the entire opposite of other sale methods. Rather than seeing public exposure, you should sell your general purpose machinery company in a confidential manner. This means your broker should only leverage private connections, networks, and databases to find a buyer. They should also implement the use of non-disclosure agreements (NDAs), blind listings, and other confidential methods to protect the privacy of the sale.
The marketing process may look different for every buyer. However, there are common steps that are involved with most sales. These steps most notably include the following:
- Draft your confidential information memorandum (CIM) and non-disclosure agreement (NDA)
- Screen offers as they arise to ensure the buyers are qualified
- Negotiate a deal with a qualified buyer and plan contingencies as necessary
- Secure a purchase deal with a signed letter of intent (LOI)
The due diligence stage involves the buyer reviewing your documents, visiting your manufacturing facilities, and requesting more information. In some cases, the buyer may also request meetings with certain employees and business partners. The due diligence process may look different for you based on the specifics of the sale.
However, this does not mean the process should be entirely open-ended. Your broker should work on your behalf to ensure the due diligence process moves quickly. Otherwise, something could occur in the buyer’s life that causes them to change their mind and back out of the purchase. To ensure a fast due diligence process, your buyer can implement a due diligence map that outlines all tasks (and a timeline for each).
The deal is finalized at the closing table, which is scheduled after due diligence is complete or a date may be agreed upon when the buyer signs a letter of intent (LOI). At the closing table, the following takes place:
- The buyer and the seller sign the purchase agreement
- The buyer sends the payment to the seller, and the seller confirms they have received the payment
- The seller begins the transfer of ownership, which may continue after the sale is complete
Speak With an Experienced Business Broker to Get Started
Are you planning your exit strategy? If so, then we can help you sell your machinery manufacturing company. With more than a decade of experience and more than 600 businesses sold successfully we have the experience you need in your corner to sell for fair market value. So, why wait? Contact us today to get started with a free consultation and business valuation.