Successfully selling a California manufacturing business
The last few months have been exceptionally interesting as I have been assisting the owner of a manufacturing company sell his Silicon Valley, California business.
This business is exceptionally successful. It enjoys an annual EBITDA of over $1 million per year. As a result, there has been huge buyer interest not only from within the USA but also potential buyers from Europe, the Middle East and Asia including China and India.
At the writing of this article the seller of the business has accepted an offer. If all goes well, will close escrow about the middle of March 2020.
Negotiating the sale of this California manufacturing business.
Some of the items of interest, include:
There have been approximately 83 buyer inquiries about the business.
- Of the 80 buyer inquiries, approximately 50% were individual buyers and 50% were from US based Private Equity Groups or similar such as a Family Office or Search Fund.
- Some of the buyers became too hard to work with as they wanted to negotiate exceptionally minor points of the Non-Disclosure Agreement (NDA).
- One Private Equity Group was requiring a change to one sentence of the NDA. When I asked the reason for the change, they were unable to explain why. When I suggested their wording was like the current wording and the next paragraph of the NDA provided what they were requesting it was clear they would have been difficult to work with. I presented the situation to the seller so he could decide, and his decision was to move on and so this buyer dropped out of the contention to buy the business.
- Another buyer presented themselves as being led by an Investment Banker and presented a Letter of Intent (LOI) to buy the business. Their LOI required the seller to offer a three-month exclusivity period meaning the seller could not accept offers from other buyers. The LOI also said they were offering a large cash downpayment to buy the business. The seller made a counteroffer and as part of his request, a copy of the proof of funds to show the cash was available. The reply from the buyers was that they needed to get their finance in place and so the seller held off accepting the LOI until the buyer had their finance in place. This was unfortunate for these buyers as other buyers came along with their finance in place and were able to negotiate with the seller a deal acceptable to both parties and here with due diligence now complete and waiting to close escrow in the next 10 days or so.
- Without exception, each individual buyer was needing third party finance such as an SBA loan to buy the business. Without exception, no buyer had been prequalified by an SBA lender with a letter in writing to confirm they would qualify for an SBA loan. In my opinion, this is an opportunity for qualified and motivated buyers to get this in place and increase their chances of buying a business. Each business I take to market I have an SBA lender review to get their interest in providing an SBA loan. I do this because it increases the chances of the business selling and to remove obstacles for a buyer and seller to negotiate a deal. By taking these steps it allows buyers to move ahead of other buyers and encourages the seller to take the time to negotiate with the buyer and put a deal in place; if that is what both parties wish to do.
Manufacturing industry continues to get stronger.
Per the recent article on CNBC called America’s manufacturing recession looks like it could be over the article highlights the following:
- The New York’s Empire State Manufacturing Survey for general business conditions posted a reading of 12.9, up 8 points from January 2020 and its best level since May 2019.
- In addition, new orders surged to 22.1, the highest since September 2017, and shipments rose to 18.9, the best since November 2018.
- On February 20, 2020 the Philadelphia survey exploded 20 points higher to 36.7, the highest since February 2017.
- In addition, new orders hit their highest level since May 2018.
- More good news is expected for the manufacturing sector as the first phase tariff armistice between the U.S. and China is in place.
- Also, in place is the new trade agreement between the U.S., Mexico and Canada called USMCA that replaces NAFTA.
- It’s also possible that Britain’s yearning to trigger Brexit can be put on place and this should also further boost the US manufacturing sector.
Is the time right to value and sell your California manufacturing business?
Selling any business whether it’s in manufacturing, healthcare, construction or any other industry is never easy and straight forward. Especially if the business location is California.
The first step, if this is something you are considering doing is to get a business valuation. If you would like to learn more about how to value your business, simply go to this page on my website – Successfully valuing your business. If you would like to know the value of your business, this is a service we provide. To prepare a personal business valuation for you we would need the last 3 years tax returns of the business, a recent Profit and Loss Statement and a Balance Sheet. Here is a link to see a Sample Business Valuation
Perhaps you are a Do It Yourselfer and would prefer to learn the steps to value your business. We have that option for you and this link will start you on the Steps to Value Your Business.
Contact Us to value and sell your business
If you have questions about the value of your business or the steps it takes to sell a business, use the “Contact Us” page to introduce yourself and we will get back to you.