Manufacturers within this space primarily create metal valves and pipes of varying sizes and fits. This is a surprisingly big industry with excellent demand and growth potential. Subsequently, many investors are willing to pay fair market value or greater for well-established companies. In this guide, we discuss how to value and sell your metal valve and pipe fitting company.
About The Metal Valve and Pipe Manufacturing Industry
This is a relatively niche segment of the manufacturing industry. However, within this niche, are excellent margins and relatively low competition. Due to high capital investments, there are not many new competitors entering the space. However, there is an excellent demand for established metal valve and pipe fitting companies that have shown profitability over the past five to ten years.
How to Value a Metal Valve and Pipe Manufacturing Company
A market-based valuation typically begins with a calculation of your discretionary earnings (SDE). In some cases, your EBITDA may be used. These metrics are then applied to the following rule of thumb data:
- Metal valve and pipe fitting manufacturing companies sold between 1.96 and 5.38 times the Seller’s Discretionary Earnings (SDE)
- Metal valve and pipe fitting manufacturing companies sold between 3.57 and 5.65 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
- Metal valve and pipe fitting manufacturing companies sold between 0.42 and 1.01 times the annual net sales
There are additional factors beyond your financials that potential buyers may consider before they make an offer. Notably, this can include your:
- Unique competitive advantage
- Workforce quality
- Geographic location
- Growth potential
- Reason for selling
Ultimately, your broker should arrive at a figure that they can justify during negotiations and that is based on reliable data and the specifics of your company.
How to Sell Your Metal Valve and Pipe Manufacturing Company in 3 Steps
Although there are many complexities involved with the sales process for a metal valve and pipe fitting manufacturing company, there are three primary phases upon which you can focus and prepare. These three phases are as follows:
- Plan and prepare
- Find a qualified buyer
- Close the sale
Step 1: Plan and Prepare
There are three primary tasks during the planning and preparation stage — determine your company’s value, plan your strategy, and prepare your company documents. Here is a more in-depth breakdown of each:
- Valuation – As discussed, your valuation (with a market approach) tells you how much prospective buyers are willing to pay for your company, thus allowing you to make informed decisions. It is important to choose a business broker with experience and that is willing to be honest with you about your company’s value while still seeing the full value of your company.
- Strategy – Your valuation and the current demand for metal valve and pipe fitting manufacturing companies help you determine when (and if) you list your company for sale. Your broker can help you with the difficult strategic decisions.
- Documents – You will also need to prepare your company documents, such as your federal tax returns, profit and loss (P&L) statements, balance sheets, employee lists, and list(s) of inventory. This helps ensure a smooth and successful process in the later stages of your sales journey.
Step 2: Find a Qualified Buyer
Once you enter the private market and seek a buyer, it is important to ensure you screen buyers. This means ensuring they are financially capable of purchasing your company for fair market value and are able to fulfill your other sales goals. For instance, you may feel it is important to choose a buyer who has experience in the metal manufacturing industry as this can allow you the opportunity to be less involved with the transition. Of course, your broker can help you screen offers as they arrive.
Negotiations and contingency planning are important parts of the marketing stage as well. For negotiations, your broker will seek the best deal possible for you and ensure talks remain professional and move forward toward a purchase deal. Once a deal is reached with a buyer who meets your sales goals, then your broker should have them sign a letter of purchase intent.
Step 3: Close The Sale
Due diligence is the next part of the process. For due diligence, you may need to provide the buyer with access to your company records and documents, including your tax returns (and other financial information), insurance information, employee lists, and more. The buyer may also request a visit to your manufacturing facility to learn more about business operations. Your broker should work hard to ensure the due diligence process moves along at a good pace.
After due diligence, you and the buyer can schedule a time to close the sale for your metal valve and pipe fitting manufacturing company. During closing, you and the buyer (along with both of your respective attorneys) can review the purchase agreement for a final time. You and the buyer then sign the agreement. The buyer then sends the payment according to the agreed-upon terms. This may involve full payment or financing. After the sale, you can begin transferring ownership of the company and complete the final stages of your exit strategy.
Are You Planning Your Exit Strategy?
We help manufacturing companies sell for fair market value or greater and meet their other sales goals. If you are considering selling your metal valve and pipe fitting manufacturing company, then contact us today. We are glad to help you understand the sales process and provide you with a free, no-obligation business valuation.