How to Sell a Proprietary Manufacturing Company

How to Sell a Proprietary Manufacturing Company

Are you considering selling your proprietary manufacturing company? In this review, we discuss the valuation and sales process to help you have a smooth and successful exit strategy and sell your company to the right buyer and for full value. 

About The Proprietary Manufacturing Industry

Proprietary manufacturing, as the name suggests, involves the manufacturing of private products that other companies are not allowed to manufacture. This could be the manufacturer’s own product, although it is usually the product of another private company. 

 

The industry has great net income (when companies operate correctly). However, a new owner must have technical experience and (ideally) a background in manufacturing, which may limit the search for a new buyer. Nevertheless, there is still excellent damage for proprietary manufacturing companies in the United States. 

How to Value a Proprietary Manufacturing Company

Rule of thumb data is a great place to start when formulating a business valuation for your proprietary product manufacturing company. However, for this industry, rule of thumb data is not always the most accurate depiction. Instead, the specific details of your company may create a rather large adjustment. 

 

For example, if your company has a patent for a highly-regarded product that is trending in popularity, then you may receive a higher value than your rule of thumb data suggests. Nevertheless, your company’s profits and industry multiples are still important. The industry data is as follows: 

 

How to Sell a Proprietary Manufacturing Company

We have broken the sales process down into seven steps for a proprietary manufacturing company; your sales process may vary slightly depending on the specifics of your company. Specifically, the steps are: 

  1. Receive a professional business valuation
  2. Collect your legal, financial, and operational documentsHow to Sell a Manufacturing Company
  3. Create your NDA, CIM, and video interview
  4. Seek potential buyers (via your business broker)
  5. Negotiate a deal and have the buyer sign a letter of intent (LOI)
  6. Allow the buyer an opportunity for due diligence
  7. Close the sale and transfer ownership

Receive a Professional Business Valuation

There are three types of professional business valuations — market approach, income approach, and asset approach. For exit strategies, business brokers typically recommended a market approach. This determines your worth on the market and helps you prepare for the offers you may receive. It also helps you set your asking price. Most importantly, however, it allows you to determine when you enter the market and sell your business. Ideally, you want to sell when there is high demand for proprietary manufacturing companies and the rule of thumb data is favorable. 

Collect Your Legal, Financial, and Operational Documents

Next, particularly after you plan your exit strategy with your business broker, you will collect your legal, financial, and operational documents. These will be needed during the due diligence stage. Your broker can help you prepare a list of documents you will need to collect. Specifically, you may need the following: 

 

  • Patents and trademarks for your proprietary products (if applicable)
  • A list of your existing inventory, manufacturing equipment and supplies lists, and asset lists
  • Financial statements such as profit and loss statements, cash flow statements, and at least three years of your federal tax returns
  • A list of your employees, suppliers, and customers. For customers, you should list the percentage of your income for each one

Create Your NDA, CIM, and Video Interview

Your broker will also help you create a non-disclosure agreement (NDA) and a confidential information memorandum (CIM). A video interview can also help you reach and stay in communication with more potential buyers. An NDA is necessary to ensure any potential buyer who views your company information keeps the information private. A CIM is a type of sales memo that prioritizes the privacy of the information, and it may withhold certain details about your company (name, precise location, etc.). 

Seek Potential Buyers (via Your Business Broker)

Finally, after you fully prepare your proprietary manufacturing company for sale, your business broker will begin seeking potential buyers. In doing so, they may leverage a multitude of channels, not the least of which includes private databases and connections and contacts they have established. They will also screen offers as they arrive for quality and move the conversation forward with those who are in a position to purchase your company. 

Negotiate a Deal and Have The Buyer Sign a Letter of Intent (LOI)

This is when your video interview comes into play. You can show your video interview to all interested parties who are qualified to purchase your proprietary manufacturing company. In a way, this serves as an interview without you physically having to meet with each potential buyer, and it allows you to stay in more negotiations and save more time. 

Letter of Intent (LOI) When selling a business

Ultimately, your business broker will negotiate a deal according to the terms that are most important to you. For example, if you prioritize your freedom after the sale and do not want to assist much with training the new buyer, then your broker will ensure this is a part of the deal. Once you reach a deal you are satisfied with, then your broker will have the buyer sign a letter of intent (LOI) that launches the due diligence stage (see below). 

Allow The Buyer The Opportunity for Due Diligence

Due diligence is an opportunity for the buyer to review and investigate your company before they close the sale. If they find any concerns or feel as if the seller has misportrayed the company, then they may head back to the negotiating table. As the seller, your role is to provide the buyer with all they need in a timely manner; your broker should also guide the process to ensure it moves along efficiently while still ensuring the buyer is satisfied with the process. Ultimately, after due diligence is complete, both parties can move to close the sale. 

Close The Sale and Transfer Ownership

Lastly, both parties will review and sign the purchase agreement. During closing, the buyer will also complete the payment for the company. This could be via an escrow agent or paid directly to the seller from the buyer. If there is seller financing, then only the down payment is made upon closing in most cases. 

 

After the payment, the seller should start the ownership transfer. This involves updating legal information (i.e. business licenses, patents, etc.). It may also include getting the utilities into the buyer’s name, among other minor tasks such as this. The seller may also need to inform the employees, suppliers, and customers that the sale is complete, along with introducing the new owner to them. If both sides have agreed to training from the seller, then the seller will need to fulfill the training obligation. Afterward, they are free to move fully into the next chapter of their life. 

Sigma Mergers and Acquisitions Can Help You Plan and Execute Your Exit Strategy

We have helped numerous product manufacturers sell for fair market value. If you are ready to retire or start a new business venture, then we are here to help you sell your proprietary manufacturing company. As Dallas business brokers (with offices in Fort Worth, TX and Houston, TX as well) with more than 20 years of experience, we understand what it takes to sell for fair market value. Contact us today to learn more and to receive a free, no-obligation business valuation. Sigma Mergers & Acquisitions is the leading Mergers and Acquisitions, Business broker advisory firm in Dallas Texas specializing in facilitating strategic transactions for businesses across diverse industries. Our seasoned team of experts meticulously navigates clients through the intricate process of Business brokerage, mergers, acquisitions, and divestitures, ensuring seamless transitions and maximizing value. With a client-centric approach, we offer tailored solutions designed to meet the unique needs and objectives of each organization. Our comprehensive suite of services encompasses every aspect of the transaction lifecycle, from initial valuation and market analysis to due diligence, negotiation, and post-merger integration. Through a combination of extensive industry experience, market insights, and unparalleled dedication, Sigma Mergers & Acquisitions delivers exceptional results that drive growth and prosperity for our clients. Whether you are considering selling your business, seeking strategic acquisitions, or exploring other growth opportunities, trust Sigma Mergers & Acquisitions to be your trusted partner every step of the way. Contact us today to discover how we can help you unlock the full potential of your business and achieve your strategic objectives.

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Scot Cockroft Business Broker
Hi, I’m Scot Cockroft.

When I founded Sigma Mergers and Acquisitions back in 2003, I had sold my business the year prior.

Now, that can sound good, but let me tell you, back in 2003, it was not easy to sell a business. Not that I’m saying in modern day times it’s easy to sell a business, but back then I interviewed broker after broker after broker, and no one was interested in actually seeing the value that my business brought to the table.

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Sigma is a the leading business broker in with Corporate offices in Dallas/Fort Worth with roots from 1984. Over 600 businesses sold in Dallas, Fort Worth, Texas, Oklahoma and across the South. Sigma provides full business brokerage services with NO upfront fees. We provide Market approach business valuations for business sales. Sigma is passionate about helping business owners achieve their goal of financial security. Contact us today for a free no obligation business valuation. We are here to help you achieve your goals.

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