The auto wrecking industry is a unique industry with great potential and sustainability. Now is a great time for many owners to sell for fair market value and complete their exit strategy. This guide is a discussion of the valuation and sales process for auto-wrecking company owners.
About The Auto Wrecking Industry
This industry goes far beyond auto wrecking. Additional services within the industry include but are not limited to recyclers, dismantlers, scrap yards, and salvage yards. Many companies within this industry also retail new, used, and rebuilt automotive parts and accessories (Business Reference Guide). The most recent industry numbers are:
- There was a 1.0% annual growth for the Auto wrecking industry from 2018 to 2023
- The Auto wrecking industry generates $6.5 billion in annual revenue
- The annual profit for the Auto wrecking industry is $357.8 million
- Experts predict a sizable increase in annual growth (1.1%) from 2023 to 2028
How to Value Your Auto Wrecking Company
You will need your financial information to determine your auto wrecking company’s value, including at least three years of tax returns, profit and loss (P&L) statements, balance sheets, and cash flow statements. You will also need lists of your machinery and equipment, along with an appraisal of your property (if you are the owner). Your company’s information such as your seller’s discretionary earnings (SDE) is used along with rule of thumb data to determine a general valuation. The rule of thumb data for the auto wrecking industry includes:
- Auto wrecking companies sold between 2.16 and 3.91 times the Seller’s Discretionary Earnings (SDE)
- Auto wrecking companies sold between 2.73 and 9.85 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
- Auto wrecking companies sold between 0.57 and 0.73 times the annual net sales
It is important to remember that a professional valuation factors in many more factors beyond your financials and rule of thumb data. Your business broker will also consider your location, the diversity of your existing customers, legal issues (i.e. pending lawsuits), growth potential, and your reason for selling. Ultimately, the goal of a market-based valuation is to determine how much potential buyers are willing to pay for your auto wrecking company, which is also known as your fair market value (FMV).
You should also check: How to Sell a Liquor Store
How to Sell Your Auto Wrecking Company in 4 Steps
Selling an auto wrecking company is more complex than simply listing your business and accepting an offer. Instead, you will need to maintain confidentiality and ensure you are adequately prepared and know your business value. You can break the process down into four phases.
Valuation and Planning Your Sale Strategy
As discussed, your valuation determines your fair market value (FMV). This is the amount that is considered fair for a buyer to pay when purchasing your company. In some cases, auto wrecking companies sell for above-market value, especially when there are multiple offers. If you desire to improve your valuation and achieve a higher sale price, it may be best to wait before selling. When you choose to sell, there are certain preparations that are important, such as preparing your financial, legal, and operational details and documents. All of this is discussed with your broker and organized during this first stage.
Market Your Company to Potential Buyers
This part can be incredibly difficult if you attempt to sell your auto wrecking company without professional help. You run a high risk of the sale leaking and becoming public, which could lead to a host of problems such as business disruptions, employee resignations, and clients backing out of contracts. It could also scare away potential buyers or influence your value.
Due to these concerns, we recommend working with a business broker. In either case, the goal is to sell in a confidential manner, while still ensuring your business is shown to hundreds (or more) potential buyers. Business brokers have numerous contacts, access to various databases, and understand effective methods of maintaining confidentiality (i.e. blind listings).
Negotiate The Terms of a Deal With The Right Buyer
You (or your broker) will be in communication with all potential buyers who are interested throughout the process. This may involve negotiating and contingency planning. Ultimately, you will select a buyer who has the most appealing offer — the one that allows you to reach or exceed your sales goals the most. This process ends with a signed letter of intent, or LOI.
Due Diligence and Closing The Sale
Due diligence starts after there is a signed LOI from a buyer you trust and with whom you intend to sell. The buyer may request your financial information, such as tax returns, P&L statements, balance sheets, insurance policies, and more. They (and their attorney, CPA, etc.) want to verify the financial details of the company. They may also request a walk-through of your facility and meetings with your top employees, business partners, etc.
After due diligence, you will close the sale and finish your exit strategy. This involves the transfer of the company to the buyer. Notably, you may need to update insurance information (so that it is in the buyer’s name), provide full access to all facilities and online systems, notify employees and customers, etc.
Contact Sigma Mergers Today to Discuss Your Exit Strategy
You can schedule a consultation with a business broker at Sigma Mergers & Acquisitions. We are glad to discuss your exit strategy and provide you with a no-cost and no-obligation business valuation for your auto wrecking company.
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.
Feel free to reach out!