Profitable, Value Priced Manufacturer with Niche Product Line
Please note: This business remains open and fully operational because of exemption from the Governor’s Covid19 executive order as a critical supplier to the defense industry.
It has been a great 25 year run for the founder/owner/seller of this profitable and highly niched manufacturer of fabricated steel products for industry; however, age considerations necessitate selling his attractive business (to only its second owner) and retiring.
Ideally situated in a desirable suburb in southern Michigan, the business owns a late model 9,000 square foot facility on a three acre parcel (both of which are included in the sale) literally one minute off a major highway. The company employs eight highly skilled, well-paid, loyal, non-union machinists and engineers who fabricate the company’s own product line as well as custom products fabricated from customers’ prints.
And talk about a niche business: this company is the only domestic manufacturer of its line of steel products. The limited competition comes from a few Asian suppliers. To fabricate its extensive product line, the company’s shop floor is crammed with functional machinery and equipment ($850,000 at cost), all of which is included in the sale of the business.
The company records average annual revenues of $1,000,000 and currently has a $400,000 backlog, and this with neither sales personnel nor sales reps! The loyal customer base (there is no customer concentration) is willing to wait months for delivery as the unique machining skills coupled with products manufactured to very high quality standards make the products worth the wait. Clearly a younger and more aggressive new owner might want to explore a second shift option given the business only operates a single shift with limited overtime.
The company records average annual SDE (seller’s discretionary earnings – historical, normalized cash flow available to service debt and pay the new owner-operator) of $125,000 after paying $30,000 annually of rent to the real estate LLC (included in the sale). The business is value priced at $735,000 which is comprised of:
- the enterprise value of the business at a 2.50x multiple of SDE,
- the real estate with a market value of $300,000,
- highly saleable finished goods inventory with a cost basis of $125,000,
- the above mentioned machinery and equipment with an $850,000 original cost basis,
- $150,000 of tooling and designs (expense items not on the books)
- Approximately $75,000 of WIP on the shop floor (at any given point in time) which is historically treated as an expense item and as such is not on the books.
The seller contemplates an asset sale in which he retains cash and A/R while delivering to the buyer unencumbered all six asset categories above. And for a qualified buyer, the seller will also carry a six figure seller note with an attractive 5.0% interest rate and provide (as part of the sale price) ample transition training.
With the seller note and the wealth of assets included in the attractive sale price, we would expect SBA banks to look favorably on a deal for a buyer with a down payment as little as 15% ($110,000) of the purchase price. To learn more about this attractive, well-priced manufacturing opportunity with huge barriers to entry, please contact Mike Greengard.