Successful sale of a Silicon Valley manufacturing business.
The last few months have been exciting as I have been assisting the owner of a manufacturing company selling his Silicon Valley, California business.
This business is highly successful, generating an annual EBITDA of over $1 million. As a result, there has been significant buyer interest. The interest is not only from within the USA but also from potential buyers in Europe, the Middle East, and Asia, including China and India.
At the time of writing this article, the Seller of the business has accepted an offer. If all goes well, we expect to close escrow around mid-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 over 80 buyer inquiries, approximately 50% were from individual buyers. The other 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 requested to change one sentence of the NDA. When I asked the reason for the change, they were unable to explain why. When I suggested that their wording was similar to the current wording and the following paragraph of the NDA provided what they were requesting, it was clear they would have been challenging to work with. I presented the situation to the Seller so he could decide, and he decided not to move forward. As a result, this buyer dropped out of contention to buy the business.
- Another buyer stated that they were being led by an Investment Banker and sent a Letter of Intent (LOI) to purchase the business. The LOI requires the Seller to offer a three-month exclusivity period, meaning the Seller cannot accept offers from other buyers during this period. The LOI also stated that they were offering a substantial cash down payment to purchase the business. The Seller made a counteroffer, and as part of his request, a copy of proof of funds was required to demonstrate that the cash was available. The buyers replied that they needed to finalize their finances, and so the Seller held off accepting the LOI. This was unfortunate for these buyers, as other buyers came along with their financing in place and were able to negotiate a deal acceptable to both parties.
SBA loan prequalification letter
Without exception, each buyer was seeking third-party financing, such as an SBA loan, to purchase the business. Without exception, no buyer had been prequalified by an SBA lender with a written confirmation letter to confirm their eligibility for an SBA loan.
For each business I take to market, I have an SBA lender review to gauge their interest in providing an SBA loan. I do this because it increases the chances of the business selling and removes obstacles for a buyer and Seller to negotiate a deal. By taking these steps, buyers can move ahead of others and encourage sellers to take the time to negotiate with them, putting a deal in place if that is what both parties wish to do.
The manufacturing industry continues to get stronger.
According to a recent article on CNBC, America’s manufacturing recession appears to be over. The article highlights the following:
- The New York 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.
- Additionally, new orders reached their highest level since May 2018.
- More good news is expected for the manufacturing sector, as the first phase of the tariff armistice between the U.S. and China is in place.
- Additionally, in place is the new trade agreement between the U.S., Mexico, and Canada, known as USMCA, which replaces NAFTA.
- It’s also possible that Britain’s yearning to trigger Brexit can be put on hold. As a result, 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. Especially if the business location is in California.
The first step is to get a business valuation. To learn more, simply visit 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 require the last three 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 DIYer and would prefer to learn the steps to value your business. We have that option available for you, and this link will guide you through 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 involved in selling a business, please use the “Contact Us” page. Simply introduce yourself, and we will get back to you.