After major growth the past five years and unfavorable projections moving forward, now is the right time for many aluminum manufacturing businesses to sell before valuations decline. This review discusses how to value and sell an aluminum manufacturing business for fair market value (FMV), along with highlighting the role your business broker should play throughout your sales journey.
About The Aluminum Manufacturing Industry
The aluminum manufacturing industry has performed well in recent years. Pulled from Business Reference Guide, the electrical manufacturing industry can be broken into two categories, which are:
- Flat rolling or continuous casting sheet, plate, foil and welded tube from purchased aluminum
- Recovering aluminum from scrap and flat rolling or continuous casting sheet, plate, foil, and welded tube in integrated mills
The industry is battling increased prices for aluminum. As always, government regulations (and the fear of additional regulations) can have a major impact on the industry as well. Consequently, despite excellent performance the past five years, the industry projections are not optimal. Specifically, here are the numbers and projections for the aluminum manufacturing industry:
- There are approximately 545 aluminum manufacturing businesses in the U.S.
- There was a 3.2% annual growth for the aluminum manufacturing industry from 2018 to 2023
- The aluminum manufacturing industry generates $47.5 billion in annual revenue
- The annual profit for the aluminum manufacturing industry is $1.7 billion
- Experts predict a decline in annual growth (-2.1%) from 2023 to 2028
About The Aluminum Extruded Products Industry
This industry engages in rolling, drawing, and extruding shapes from purchased aluminum. Businesses within this industry receive similar valuations to aluminum manufacturing companies. As a general rule of thumb, aluminum extruded product manufacturers generally sell for 50% of their annual sales plus inventory, 6 times their SDE plus inventory, and 4 times their EBITDA.
How Much is an Aluminum Manufacturing Business Worth?
First and foremost, the calculation of your aluminum manufacturing company’s value with a market approach is a complex process that should take a close look at both the financial and non-financial elements of your company. Specifically, a professional valuation should consider your unique selling advantage, the quality of your workforce, location, and your reason for selling (among more than a dozen additional factors).
Of course, anything that shows up in a financial report also affects the value. Specifically, your broker will calculate your EBITDA and SDE and apply these figures to the rule of thumb data for your industry. The rule of thumb data, also known as acquisition multiples, for the aluminum manufacturing industry is as follows:
- Aluminum manufacturing businesses sold between 1.52 and 4.51 times the Seller’s Discretionary Earnings (SDE)
- Aluminum manufacturing businesses sold between 2.50 and 6.06 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
- Aluminum manufacturing businesses sold between 0.27 and 1.40 times the annual net sales
Steps to Sell an Aluminum Manufacturing Business
Here are the steps involved with the sale of an aluminum manufacturing business. Of course, your experience will be unique and (ideally) personalized to your needs and goals.
- Determine the overall value of your company
- Plan your exit strategy with a qualified business broker
- Bring your aluminum manufacturing business to market in a confidential manner
- Secure a buyer with a letter of intent (LOI)
- Complete the due diligence process
- Close the sale and transfer ownership to the buyer
Determine The Overall Value of Your Company
Above we discuss the importance and methodology for formulating your company’s fair market value (FMV). After choosing your business broker (and assembling the rest of your sales team), this is the first step you will take. A professional valuation offers numerous benefits, such as:
- Assurance that you know your fair market value (FMV)
- More leverage during negotiations
- An understanding of how to improve your company’s value (if necessary)
In some cases, the seller decides it is best to improve their valuation before they sell the company. In this case, their business brokerage offers more of a consultancy role as they are experts in valuations, and they can help the owner develop a strategy to raise their value.
Plan Your Exit Strategy With a Qualified Business Broker
The next step is planning your exit strategy, particularly when you achieve your ideal value. During this stage, you will need to also prepare your financial, legal, and operational documents. Notably, this includes your tax returns, profit and loss statements, insurance policy (a copy), and employee records. Your broker (and attorney and CPA, if applicable) can assist you with preparing and developing your strategy.
Bring Your Aluminum Manufacturing Business to Market in a Confidential Manner
Once you achieve the value that allows you to reach your exit strategy goals and the market is favorable for sellers, your broker will assist you with entering the market. This is done in a confidential manner to protect the company from business disruptions and avoid scaring off potential buyers from making offers. Your broker will receive and review offers, keeping you informed throughout the process.
Secure a Buyer With a Letter of Intent (LOI)
The next step in the process is negotiations. Your goal as the seller is to secure the best deal possible at or above fair market value, along with meeting your other exit strategy goals. The buyer’s job is also to get the lowest purchase price possible. Needless to say, this can turn into a tense process. Your broker can ensure the process remains professional while still ensuring you get the best deal possible. Ultimately, you will secure a deal when the buyer you chose signs a letter of intent (LOI).
Complete The Due Diligence Process
Due diligence is the time between the LOI and the closing date. This is an indefinite amount of time that all too often drags on for months at a time. Due to this, here at Sigma Mergers and Acquisitions, we recommend a due diligence map, which outlines what is included in each stage of due diligence and the timeline for each stage. This helps keep things on track and helps avoid setbacks.
Close The Sale and Transfer Company Ownership to The Buyer
Finally, you will close the sale. This involves a review of the purchase agreement, attaining final signatures, confirming the buyer has successfully sent the payment, and transferring ownership of the company. You will also need to notify your employees, transfer online access for your aluminum manufacturing business, and update insurance and lease information.
Speak With a Broker Who Understands Your Industry
Here at Sigma Mergers and Acquisitions, we help businesses within the aluminum manufacturing industry (and related industries) sell their company for fair market value. If you would like to learn more and get started with a free, no-obligation business valuation, then schedule a consultation today.
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.
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