Now is a great time to be an owner of an industrial packaging company. There are two options: enjoy the industry growth and continue operating a successful company, or sell your company and receive an excellent valuation that is likely to be much higher than it will be in the future. If you decide to sell, then this guide is for you. We discuss the valuation and sales process for industrial packaging company owners.
About The Industrial Packaging Industry
The industrial packaging industry is an umbrella term that encompasses a range of business types. It can include the packaging and shipment of industrial-sized goods, heavy duty packaging, or another type of specialty packaging. The industrial packaging industry has shown significant increases the past five years and should continue to sustain excellent growth through 2028 (according to Business Reference Guide). Here are the most recent industry numbers and projections:
- There was a 5.3% annual growth for the industrial packaging industry from 2018 to 2023
- The industrial packaging industry generates $11.6 billion in annual revenue
- The annual profit for the industrial packaging industry is $753.3 million
- Experts predict a sizable increase in annual growth (2.5%) from 2023 to 2028
How to Value an Industrial Packaging Company
Industrial packaging companies often receive excellent valuations (far above valuations typically found in other industries). However, the same process applies. Specifically, this involves the use of a market approach. With a market approach, the broker calculates your EBITDA and SDE, which uses financial data from your internal reports and tax returns. These numbers are then applied to the following rule of thumb data for the industrial packaging industry:
- Industrial packaging companies sold between 2.54 and 3.34 times the Seller’s Discretionary Earnings (SDE)
- Industrial packaging companies sold between 6.20 and 6.58 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
- Industrial packaging companies sold between 0.46 and 0.69 times the annual net sales
Lastly, necessary adjustments are made based on a range of other factors, such as your geographic location, the quality of your workforce, growth potential, customer concentration, and reason for selling. For instance, if none of your customers make up a high percentage of your profits and you have employees that have been with the company for years, then you may receive a higher valuation.
How to Sell an Industrial Packaging Company
We have broken the sales process for industrial packaging companies down into three key phases. It helps to take each step one at a time to void feeling overwhelmed or skipping important steps. Notably, the three phases are:
- Phase one: before you market your company
- Phase two: marketing and finding the right buyer
- Phase three: due diligence and closing the sale
Phase One: Before You Market Your Company
There are a number of steps that must be taken before you seek a buyer for your company. Notably, the three steps you should take in phase one of your sales journey are:
1. Professional valuation
As discussed early in this article, a market-based business valuation allows you to determine the amount a fair and reasonable buyer will pay for your company. This involves the review of your company’s financial performance, along with a number of non-financial considerations.
2. Establish your sales goals
This, of course, includes your initial asking price as well as your willingness to come down from the asking price. However, your sales goals should go beyond financial considerations. For instance, perhaps it is important for you to find a buyer within the industrial packaging industry, thus allowing you to be less involved with the transition process.
3. Determine your long-term vision
The next step is to determine your long-term vision. This is not necessarily the vision you have for the company you are selling. Instead, what do you hope to achieve long-term? For many owners, especially those that have worked for the past 30+ years, this involves retirement and spending time with loved ones. For others, it may involve starting a business venture with a friend or family member.
4. Prepare your company documents
Lastly, you will need to prepare your company’s financial, legal, and operational documents. Your broker can provide you with a complete list. Although, it should include your tax returns, profit and loss (P&L) statements, business licenses, employee lists, inventory and asset lists, and operational procedures.
Phase Two: Marketing and Finding The Right Buyer
After you have prepared for the sale, the next step is to market your company and find the right buyer. Keep in mind, at this point, you already have a justifiable business valuation that potential buyers will trust. You have also established what you hope to gain from the sale both short-term and long-term (and both financially and non-financially. This makes the broker’s job much easier.
The broker will seek a buyer by leveraging a variety of different channels, such as private databases, networks, and contacts they have developed through the years. Remember, all methods for finding a buyer are confidential. In most cases, potential buyers are asked to sign a non-disclosure agreement (NDA) before they view the details of your company. This second phase also involves screening offers, launching negotiations, and ultimately securing a deal with the buyer you choose by having them sign a letter of intent (LOI).
Phase Three: Due Diligence and Closing The Sale
A deal is not done after you have a signed LOI. In most cases, LOIs are non-binding and contingent upon the buyer confirming details of your company during due diligence. More specifically, due diligence involves the buyer reviewing your industrial packaging company’s documents, touring your facilities and workplace operations, and meeting with you (this could be virtual or in-person)
After due diligence, you can schedule a time to close the sale. During closing, you will review and sign the purchase agreement; your broker and attorney will likely use the LOI as a template for the purchase agreement, unless new negotiations take place. The buyer will send the payment during closing (this may be via an escrow agent).
Afterward, you can begin the transition of ownership to the buyer. This may involve updating legal information, switching utilities into the buyer’s name, providing the buyer with access to all of your industrial facilities and equipment, and introducing the buyer to employees, customers, and suppliers. Of course, depending on what has been negotiated, you may also be involved in the training process as well.
Sigma Mergers Has Helped Sell 600+ Companies in The Past 20 Years
If you own an industrial packaging company and are considering a business sale, then contact the experts at Sigma Mergers and Acquisitions. We pride ourselves in our ability to find the full value of a company and seek a buyer that is willing to pay full value and able to continue your vision.