The electrical manufacturing industry is exciting. It is relatively low-risk with a high barrier to entry. The profitability and projections are also great for established companies. This makes it an ideal time for electrical manufacturing company owners to sell for excellent value. In this guide, we discuss the sales process for owners who are planning their exit strategy.
About The Electrical Manufacturing Industry
The electrical manufacturing industry produces various types of transformers, including power, distribution, and specialty transformers (Business Reference Guide). They also produce electric motors, generators, and motor generator sets, among other types of electrical devices and machinery. This industry also includes manufacturing industrial and commercial electric apparatus, power converters, power supplies, surge suppressors, and similar equipment. Here are the most recent industry numbers:
- There are approximately 1,938 electrical manufacturing companies 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 electrical manufacturing industry is $2.5 billion
- Experts predict an increase in annual growth (0.8%) from 2023 to 2028
How to Value an Electrical Manufacturing Company Company
A professional business valuation is more than an opinionated estimate of your company’s worth. Instead, your broker should look closely at all aspects of your business, which includes your company’s financial information and other non-financial information such as your location, growth potential, and reason for selling.
Of course, your broker should also consider previous sales data. This includes the use of rule of thumb data (acquisition multiples) for the electrical manufacturing industry. These multiples are as follows:
- Electrical manufacturing companies sold between 2.78 and 5.87 times the Seller’s Discretionary Earnings (SDE)
- Electrical manufacturing companies sold between 5.37 and 8.70 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
- Electrical manufacturing companies sold between 0.58 and 1.21 times the annual net sales
In a market approach, rule of thumb data is applied to your SDE, EBITDA, net sales, and other financial metrics to formulate a starting point for your valuation. Your broker should also apply the necessary adjustments based on other, non-financial factors.
The Sales Process for an Electrical Manufacturing Company Company
You should meet with a qualified business broker to plan your sales strategy. This is because there is no one size fits all approach to selling a manufacturing company, and you should personalize your strategy according to what works best for you. However, the general steps involved in the process are as follows:
- Value your electrical manufacturing company
- Prepare your electrical manufacturing company for sale
- Bring your company to market in a confidential manner
- Secure a deal with a signed letter of intent (LOI)
- Close the sale after you complete the due diligence timeline
- Transfer ownership of your company according to the agreed-upon terms
1. Value Your Electrical Manufacturing Company
We discussed the role of a business valuation above. Ultimately, a business valuation is important to determine your fair market value. This helps ensure you do not sell for less than your company is worth or risk your company not selling due to overpricing. Also, your valuation helps you plan your strategy. For instance, if you are not entirely satisfied with your company’s value, it may be best to wait until you list it for sale and work on your value in the interim.
2. Prepare Your Electrical Manufacturing Company for Sale
Once you are able to reach your goals on the market, it is time to list your electrical manufacturing company for sale. However, you should first prepare for the sale. This involves collecting your legal, financial, and operational documents. You should also prepare your confidential memorandum and non-disclosure agreement that you will show to potential buyers (see below).
3. Bring Your Company to Market in a Confidential Manner
The marketing stage is where you will show your business details to prospective buyers. This is often done in a confidential manner so as not to jeopardize the confidentiality of the sale process. For instance, your broker may advise not listing your company’s name on the sales memorandum and having any prospective buyers who view the memo sign a non-disclosure agreement (NDA).
4. Secure a Deal With a Signed Letter of Intent (LOI)
Your broker should screen offers as they arrive. This ensures you are not involved in lengthy discussions only to find out the buyer is unable to follow through with the purchase. Ultimately, you will negotiate terms with a qualified buyer and accept the best offer possible according to your sales goals. The deal is secured with a signed letter of intent (LOI).
5. Close The Sale After You Complete The Due Diligence Timeline
A due diligence timeline helps you stay on track throughout the due diligence process. This helps ensure the process does not take longer than it should. Otherwise, the sale could be delayed for weeks or even months if the buyer takes their time. In the meantime, something could arise in their life that causes them to back out of the deal.
Your broker should implement the due diligence timeline, which may involve providing documents to the buyer, allowing them to tour your electrical manufacturing facilities, and answering any follow-up questions they have. After due diligence, you can close the sale, which involves signing the purchase agreement and confirming the payment has been sent.
6. Transfer Ownership of Your Company According to The Agreed Upon Terms
The transfer of ownership begins during closing and may continue for a year or more after. You can negotiate the transition terms as you desire. Keep in mind, however, the more you are willing to help the more a buyer may be willing to pay. In some cases, the seller does not offer much assistance, whereas in other cases the seller may continue working full-time for up to a year.
Contact Sigma Mergers for More Information Today
Are you considering selling your electrical manufacturing company? If so, then contact the brokerage and consultancy professionals here at Sigma Mergers and Acquisitions. We help business owners value and sell their company in a stress-free and efficient manner.