Are you considering selling your electrical manufacturing business? If so, then this guide from a professional and experienced business broker provides all of the information you need to plan and prepare for your sales journey. Specifically, we highlight the sales process, how to determine your value, and the role your broker should play throughout the execution of your exit strategy.
About The Electrical Manufacturing Industry
The electrical manufacturing industry is primarily engaged in manufacturing power, distribution, and specialty transformers (Business Reference Guide). Specifically, electrical manufacturing may involve the production of the following electrical systems:
- Electric motors
- Motor generator sets
- Switchboard apparatus
- Industrial controls.
There are certain challenges business owners within the industry face, such as the threat of import competition. However, overall the risk for established companies is relatively low, and there is a relatively tough barrier to entry which keeps domestic competition at bay. Although profits may range widely from year to year, long-term outlooks are more predictable and stable. The most recent electrical manufacturing industry data and projections are as follows:
- There are approximately 1,938 electrical manufacturing businesses in the U.S.
- There was a 1.7% annual growth for the electrical manufacturing industry from 2018 to 2023
- The electrical manufacturing industry generates $46.1 billion in annual revenue
- The annual profit for the advertising industry is $2.5 billion
- Experts predict a slight increase in annual growth (0.8%) from 2023 to 2028
About The Electrical Connectors Industry
This industry involves the manufacturing of electromedical and electrotherapeutic apparatus, such as magnetic resonance imaging equipment, medical ultrasound equipment, pacemakers, hearing aids, electrocardiographs, and electromedical endoscopic equipment (Business Reference Guide). As a general rule of thumb, electrical connector manufacturing companies generally sell for three times (3x) their EBITDA.
A Market Approach to Determine Your Company’s Value
Your broker may use a market approach to formulate your company’s fair market value (FMV). This involves the application of rule of thumb data to your company’s financial information, including your SDE, EBITDA, and net sales. Here is the rule of thumb data for the electrical manufacturing industry:
- Electrical manufacturing businesses sold between 2.78 and 5.87 times the Seller’s Discretionary Earnings (SDE)
- Electrical manufacturing businesses sold between 5.37 and 8.70 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
- Electrical manufacturing businesses sold between 0.58 and 1.21 times the annual net sales
This is not to diminish the importance of non-financial factors such as your unique selling advantage, location, the quality of your workforce, and your reason for selling. Your broker should take a comprehensive view during the market approach to ensure the full value of your electrical manufacturing business is underwood and recognized.
A Step-by-Step Guide to Selling Your Electrical Manufacturing Business
To help you fully understand the sales process, we have broken it down into a range of steps. This should help you navigate the complexities and properly prepare. The steps include:
- Confidential Marketing
- Letter of Intent (LOI)
- Due diligence
- Sale transfer
Your valuation is incredibly crucial to ensure you receive fair market value. After all, you have to be able to define fair market value before you can ask for it or receive it in an offer. Your broker can provide a professional value for your electrical manufacturing business as the first step in your sales journey.
Once you decide to go to market, you should begin planning your exit strategy, which includes establishing your asking price, non-financial sales goals (i.e. find a buyer who keeps your current staff), and marketing approach.
You will also need to prepare your company’s documents, such as your tax returns, P&L statements, balance sheets, cash flow statements, insurance policy, employee list, list of inventory, lease or real estate appraisal (depending on if you own or rent your manufacturing plant), and more. Your broker and attorney (and CPA, if applicable) can assist you with this step.
Once you are fully prepared with a sound strategy and all of your documents have been collected, you can begin marketing your company. This is much different than selling a product or service. Rather than public marketing and advertising, all efforts take place in a private and confidential manner to protect the integrity of the sale and void business disruptions.
Your broker will also negotiate on your behalf. This step can become tense and your broker can ensure professionalism is maintained, while still looking out for your best interest to ensure you get the best deal possible.
Letter of Intent (LOI)
The final step of the marketing stage when selling your electrical manufacturing business is securing a letter of intent (or an LOI) from the buyer who best allows you to maximize your sale price and goals. The LOI is a legal document that establishes the sales terms, including the payment amount, payment method, contingencies, and more.
You must award the buyer the opportunity for due diligence. This is a time when the buyer will review your legal and financial documents, request more questions (usually in the form of a question and answer format), and request other types of informative steps, such as a walk-through of your electrical manufacturing facility.
You can schedule a time to close the sale once due diligence has been completed. You may need to bring certain documents with you to closing, such as your bank information and a copy of the purchase agreement. Your attorney should attend closing as well to ensure the process goes smoothly and review the purchase agreement a final time before you sign.
You may start (or complete) the sale transfer during closing. This usually includes notifying vendors and employees, updating legal information (i.e. business license), updating your lease and insurance policies, and providing the buyer with full access to the facilities, online systems, etc.
Start Your Exit Strategy Today With a Consultation Call
Sigma Mergers and Acquisitions believes you should make informed decisions and have all of the information you need to start your sales journey. We offer free, no-obligation consultation calls and business valuations. Contact us today to get started with the sales process.
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!