Wood building manufacturing companies are within a fascinating industry with excellent profits and growth potential moving forward. This makes it ideal for many owners to sell for great value as there is relatively high demand to enter the industry. If you are planning your exit strategy, then this guide is for you, particularly if you are the owner of a wood building manufacturing company. Specifically, we discuss the valuation and sales process.
About The Wood Building Manufacturing Industry
The prefabricated wood building manufacturing industry involves the manufacturing of wood buildings and wood sections and panels (IBIS World). Common types of business activities within this industry include:
- Log cabin manufacturing
- Farm buildings manufacturing
- House manufacturing
- Corn cribs manufacturing
- Sawmills and wood preservers
- Paper manufacturing
Of course, these are just some of many examples. Many companies offer general prefabricated wood manufacturing that encompasses a range of purposes, whereas other companies choose a more niche sector. It is important to clarify and define your business type and sub-sector as it could play a role in the worth of your company. Overall, the industry enjoys loyal customers and a good public reputation. However, the industry is, at times, cyclical and can fluctuate as the housing market fluctuates (hence the projection of an industry downturn). Here are the most recent industry numbers and projections:
- There are approximately 870 wood building manufacturing companies in the U.S.
- There was a 1.1% annual growth for the wood building manufacturing industry from 2018 to 2023
- The wood building manufacturing industry generates $9.1 billion in annual revenue
- The annual profit for the wood building manufacturing industry is $694.9 million
- Experts predict a sizable decline in annual growth (-2.5%) from 2023 to 2028
How to Value a Wood Building Manufacturing Company
Your business valuation should use rule of thumb data (industry or acquisition multiples), which is based on recent sales data in your industry and area. Specifically, this data is applied to your seller’s discretionary earnings (SDE) and earnings before interest, taxes, depreciation, and amortization (EBITDA). The industry multiples are as follows:
- Wood building manufacturing companies sold between 3.43 and 3.71 times the Seller’s Discretionary Earnings (SDE)
- Wood building manufacturing companies sold for approximately 3.71 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
- Wood building manufacturing companies sold between 0.28 and 0.48 times the annual net sales
3 Stages of The Sales Journey for a Wood Building Manufacturing Company
A three-stage process may oversimplify how to value and sell a wood building manufacturing company. There are many steps involved within each of the three phases, which we discuss below. Also, the sales process may look different for every seller. With this in mind, be sure to choose a business broker who understands how to navigate unexpected complexities, challenges, and potential setbacks.
Plan and Prepare
The pre-marketing stages of the sale are just as vital to your overall success as the process of finding a buyer. Without taking the time to properly prepare beforehand, you face the risk of major setbacks and not selling for ideal value. So, what should you do to prepare to sell your wood building manufacturing company? We break this down into three separate answers:
- Receive a professional valuation
- Plan your exit strategy
- Prepare your company information
As discussed, your market-based valuation is a professional assessment of your wood building manufacturing company’s value on the market. This helps you plan your exit strategy, which should involve setting your asking price and determining when you list the company for sale. Your valuation also helps you take steps to improve your company’s worth as well. Lastly, you should prepare your company’s documents, such as your tax returns, profit and loss (P&L) statements, asset and equipment lists, real estate appraisal and/or lease agreements, and employee, supplier, and customer lists.
Find a Buyer
Next, you will embark on the journey for a buyer. This should be done in a confidential manner so that your business operations are not compromised during the sales process. In doing so, your broker may leverage a multitude of channels, all of which should be private. Notably, these channels may include:
- Private databases
- Online listing websites (confidential listings)
- Personal connections and contacts
- Publications such as magazines (not typically recommended)
Every broker has their own way of finding potential buyers. Most experienced business brokers are able to get the seller’s confidential information memorandum (CIM) in front of hundreds of qualified potential buyers. Of course, the broker also screens offers as they arrive and sets in motion negotiations. Once you are satisfied with an offer and ready to move the sale forward, then the buyer you choose will sign a letter of intent (LOI) that outlines the agreed upon conditions and terms for the purchase.
Close The Sale
The buyer has the opportunity to complete due diligence before you unofficially close the sale. The due diligence stage involves a thorough audit of your company. Specifically, due diligence may involve:
- A review of your company’s financial, legal, and operational documents
- Weekly meetings between the buyer and the seller
- A tour of your wood building manufacturing company’s facilities
- A meeting with key employees, executives and partners
- Arranged meetings with your top clients (if necessary)
Although these are common steps, due diligence may vary for each broker (and seller). Ultimately, after due diligence ends, the sale closes with a signed purchase agreement and the payment for the company.
After the sale is complete, the seller will need to officially transfer ownership by updating all legal information and providing them with full access to the company; the seller will also introduce the new owner to all employees, suppliers, customers, etc. Lastly, if applicable, the seller will help train the new owner how to take over business operations.
Contact Us for a Free, No-Obligation Business Valuation
Are you considering selling your wood building manufacturing company? If so, Sigma Mergers and Acquisitions is here to help. As Dallas business brokers with more than 20 years of experience, we understand how to sell your company. We have sold numerous companies within manufacturing industries, and we can help ensure you find the right buyer. Contact us today to get started with a free valuation.