Profitable Powder Coating Business Opportunity with Real Estate-SOLD

JANUARY 03, 2020

It has been a great run for the two owners of this successful West Michigan business which provides a variety of coating services to corporate customers; however, age and physical infirmities now dictate that the owners sell their business to only its third owner in the company’s 37 year history.

Operating out of a wonderfully located 22,000 square foot building located on approximately a two acre parcel (both land and building are included in the sale), this ISO-9001 business offers powder coating (both electrostatic spray and fluid bed), dip molding and dip coating to customers in a wide array of industries including automotive, aerospace, military, healthcare, furniture, marine and appliance to name several. Representative products include seatbelt housings, anchors, springs, handles, wheels, hand tools, furniture, and the like.

The customer list reads like a Who’s Who in manufacturing with most of the product shipping to Michigan facilities after the business completes its powder coat services. 69% of revenues come from the company’s five largest customers combined. Growth opportunities would seem to be plentiful by expanding the number and/or geographic reach of its customer base. With a single 40 hour shift (four 10 hour days), the business is clearly not facing any capacity issues.

For the four years ending 12/31/19, the company has recorded average annual revenues of $661,000 with typically six full time, loyal, non-union employees. Most of the employees have been with the business since the 1990’s, and all employees participate in company sponsored health and dental insurance programs.

During the same four-year period, the company has recorded average annual SDE (seller’s discretionary earnings – the historical cash flow available to pay a new owner and service debt) of $248,000 after paying $44,000 annually of triple net rent to the sellers’ LLC (which is market rate and 6.6% of average revenues).

In addition to the $248,000 of annual operating SDE, the real estate component has annual net rental income of $68,000, the total from the business ($44,000) plus $24,000 from four arm’s length tenants with leases on the vacant land and/or a small cordoned off space of the main building. The two sources of cash flow sum to $316,000 which with a favorable 4.0x multiple results in a $1,295,000 listing price for the combined business and real estate.

The “deal” for the purchase of this solid business should be equally attractive to buyers and bankers. First the included assets:

1. All machinery and equipment = $250,000 (cost basis)
2. Inventory = $90,000 (cost basis)
3. Real Estate = $550,000 (sellers’ estimate of current market value)

The sellers propose an asset sale in which they retain cash and A/R while retiring all liabilities including the mortgage on the real estate. The buyer receives the above hard assets plus of course the goodwill (name, going concern, website, customer contracts, employees, etc.) of the business.

A low six figure seller note (available to a qualified buyer) plus a 10% buyer down payment results in a projected highly favorable financing scenario in which annual debt service (bank loan + seller note) of approximately $112,000 is amply covered by the $316,000 of cash flow leaving on average $200,000 of free cash flow to pay a generous salary to the buyer(s), pay taxes and increase retained earnings for future capex needs. To learn more about this attractive niche business opportunity with significant barriers to entry, please contact Mike Greengard.