“Volatile times,” “uncertain times,” and “unprecedented times” have been mantras of the past several years. No more is the above notion clear than with the current state of the economy, where the chances for a recession continue to linger. With that in mind, is it time to think about selling your machining and fabrication business?
Recent Forbes reports cite an increasing likelihood of a soft economic landing. In other words, there’s a heightened chance for a best-case scenario–a happy middle–filling the gap between mellowing inflation and an economy still growing (including the growing pains.)
This is…good news. It’s definitely not bad news. Still, a healthy dose of perspective is needed.
The best-case scenario of a soft landing is far from utopian. On top of that, the U.S. still faces a 56% chance of recession over the next 12 months (down from August’s 66%.) Those numbers tell us there’s a marginally better chance of facing a recession than for a soft landing, despite the likelihood of the latter trending upward.
The many warning signs of a pending recession are not helping the chances for a soft landing. For example, uneven jobs data present a red flag. There’s also the inverted yield curve. These concerning indicators speak to a delayed recession instead of a prevented one.
When faced with these turbulent circumstances, the importance of informed decisions as a machining and fabrication business owner has never been greater.
As volatility and uncertainty strain our economy, they amplify the potential for making mistakes. In other words, there will be no soft landing after a poorly formed or executed strategy, plan, or decision.
One of those strategies, plans, or decisions could be selling your machining and fabrication business.
Given what’s at stake, maximizing your return is vital, necessitating a litany of best practices to ensure you get what you need to offer stability and success in these volatile times. Read on as we explore best practices when you’re considering your machine and fabrication business sale.
Are you or your client looking to sell a machining and fabrication business? Let’s talk. Arrow Machine and Fabrication Group has a simple acquisition philosophy: we are operators partnering with operators for long-term growth. We are not interested in flipping, relocating, overleveraging or dissecting assets. We want to identify best-in-class metalworking shops with complementary capabilities and/or customers and expand our offering to OEM clients globally. If you or a client is interested in learning more about partnering with Arrow, download our Broker’s Brochure or get in touch with Mike Ritchie, President and CEO. We think you’ll like what we have to offer.
Preparing Your Machining And Fabrication Business For Sale
Valuation
A fair valuation will offer you an accurate dollar amount for your business in the current economic climate.
Start by reviewing income statements, cash flow statements, balance sheets, and any other historical financial statements.
Make a thorough assessment of the current market value of your company’s tangible assets, such as machinery and equipment.
Your equipment and machinery should be a central focus, as they’re the primary reasons someone would be interested in purchasing your company. Accurately appraising equipment is non-negotiable. Without doing so, you’ll find striking a profitable deal unlikely.
Consider the following factors while performing equipment and machinery appraisals:
- Condition
- Age
- Maintenance
- Relevance to current market demands
Valuation goes beyond the nuts and bolts components of your organization, though. You also must weigh your customer base’s quality and stability. Specifically, do you have a steady stream of reliable clients on long-term contracts? It’s excellent news if you do because those long-time clients will drive up your value.
Here’s another critical question: Does your company have any patents, proprietary tech, or unique processes that offer a potential buyer a competitive edge? If yes, you’ve earned another leg up as you seek possible partnerships.
Another component of your business necessitating an insightful, accurate appraisal is the overall skill level of your workforce, including:
- Engineers
- Machinists
- Fabricators
- Management
Note how skilled workers are at a premium throughout the industry. Demand has never been higher while supply is decisively limited. A high-performing team will be a significant asset while selling your machining and fabrication business.
It is also necessary to define how equipped your business is to enter and leverage new markets and industries. How much growth potential is there, and what kind of expansion opportunities are on the horizon?
While owners should actively participate in this process–and our guide will help you do so–it’s only introductory.
Working closely with a business broker, M&A advisor, or similar third-party intermediaries or consultants will provide the most accurate and fair valuation for your unique situation. At Arrow Machine and Fabrication Group, we encourage you to have an intermediary in your corner even before you reach out to us for partnership opportunities. Get in touch to learn more about our acquisition philosophy.
Marketing and Positioning Your Business to Attract Buyers
While you might be more familiar with marketing your products/services, selling your company requires unique marketing techniques, considerations, and practices.
As a company that purchases businesses like yours, we at the Arrow Machine and Fabrication Group focus on the acquisition criteria below. Use these insights to establish the most favorable position for your business:
- Emphasize your company’s machining and fabrication expertise, honing into your reliability, precision, and overall unparalleled quality of work.
- Does your company specialize in automotive, aerospace, or another niche within machining fabrication? If yes, then zero into your niche as a unique selling point.
- Be detailed and specific about your certifications (e.g., ISO and AS9100), industry-standard adherence, and quality control processes.
- Long-standing relationships with high-value clients will be one of the primary reasons we consider acquiring your company. Place emphasis on these relationships as you market your business.
- Hiring a business broker, M&A consultant, or other experienced advisor will give you a competitive advantage in marketing and negotiations.
Timing And Strategy
Arrow Machine and Fabrication Group carries on a 100-year-old tradition of excellence that has overcome every obstacle that has come our way. With that in mind, let’s weigh the advantages and pitfalls of selling your machining and fabrication business now or waiting for the economy to stabilize.
The Benefits Of Selling Your Machining and Fabrication Business Now
The machining and fabrication industry offers buyers and investors stable demand. This sure-handed reliability is highly sought-after during unstable economic times. Selling within this economic no-man’s-land of soft landing and recession could help you realize your business’s fair–or full– value.
Consider how the current instability of our economy makes it challenging to predict what’s to come. You can’t know with 100% certainty if economic conditions will improve as projected, potentially leading to missed opportunities due to a longer wait.
These challenging times also cast light on the value of cash flow and liquidity. In selling now, you’ll acquire the financial capital to successfully navigate economic turbulence or leverage other investment opportunities.
The Pitfalls Of Selling Now
As much as potential buyers might value your industry’s stable demand in these unstable times, our current volatile landscape could have the opposite effect, adversely impacting your business’s valuation. You could end up with a lower offer than you’d receive when the economy was trending upward.
Additionally, weigh how your business has fared in the face of economic volatility.
Say you’ve thrived in these challenging circumstances–you’ll likely have leverage as you attempt to sell.
Conversely, if you’ve been hampered by economic volatility, potential buyers might be concerned by your company’s growth prospects. In this instance, selling prices and terms might not be optimal.
Final Strategic Considerations
There’s no other way to put it–selling your machine and fabrication business is a monumental decision made more complex by these volatile economic times.
Even in a more stable economy, selling would requirea thorough analysis of the above factors and nuanced consideration of your risk tolerance and big-picture objectives.
As we idle between a recession and a soft landing, comprehensive analysis and rigorous consideration become increasingly vital.
Partnering with industry-specific advisors will give you an objective perspective on your company’s standing. This will enable you to navigate the selling process more efficiently and insightfully.
Engaging potential buyers to gauge their interest during these volatile times will help formulate your strategy. If interest seems high, you know you’re already on the right path. If low, you’ll need to take a good, hard look at your current approach and find alternative solutions.
It’s also integral to think beyond the current economy.
Ask yourself about your personal and retirement goals. Have you reached the stage where you’re ready to exit the business and have a defined post-sale plan? If so, selling your machining and fabrication business is likely the right choice.
Finding the Right Buyer
Selling your Machining and Fabrication Business to an Industry Specialist
It’s important to identify potential buyers with specialized expertise in the machining and fabrication industry before making any other plans.
Buyers with industry-specific knowledge will better grasp your operation’s complexities, nuances, and intricacies. They’ll thoroughly understand the overall worth of your machinery, processes, and capabilities, likely yielding a more apt valuation.
Machining and fabrication businesses typically share long-standing relationships with suppliers, customers, and employees.
Buyers with industry expertise will possess the high-level knowledge to maintain and nourish the relationships mentioned above, increasing the chances of a smooth transition and upholding the business’s goodwill.
Next, ask yourself how compatible your company is with a potential buyer.
Industry-savvy buyers might already own complementary businesses or have synergistic companies. This could foster cost savings, growth opportunities, and operational efficiencies that would be less apparent to non-industry buyers.
Industry expert buyers will better align with your company’s strategic goals and vision than an outsider. Their awareness of the broader industry landscape means they’ll have a contextual appreciation for your operation’s strategic value.
Lastly, industry experts make more informed decisions and can do so promptly because of their specialized knowledge.
A buyer’s increased expertise lends itself to streamlined negotiations and sales, proving efficient and beneficial in volatile economic times when fast moves can make a resoundingly positive impact.
Speaking of Industry Specialists…
Arrow’s expertise and track record for acquiring and growing machining and fabrication businesses with fair, fruitful deals are unparalleled.
What makes us different from your other potential buyers? We’re not a shark looking to extract your company’s value without offering what you deserve in return.
We have firsthand knowledge of how to build successful enterprises. We embrace the responsibility of being the new partner to which you’re entrusting your business.
Furthermore, we are committed to a seamless and supportive transition that upholds the legacy of everything you’ve built.
Arrow also sees the value in owner-operators staying on board to help business growth.
Our deal structures are unique to each seller’s needs, empowering them to flourish from the fiscal and financial upsides.
Do you own a machine and fabrication company serving OEM customers in the automotive, engineered products, heavy truck, and off-road industries? If so, Arrow is interested in learning more about your business.
Final Thoughts
Any entrepreneur aiming to sell their machining and fabrication business in volatile times must adhere to the following tenets:
- Acquiring accurate valuations and executing insightful marketing strategies.
- Implementing an insightful selling strategy and selling your machining and fabrication business at the right time.
- Working with industry experts to help broker the sale.
- Finding the right buyer with industry expertise who grasps what makes your company valuable.
Arrow Machine and Fabrication Group is committed to helping businesses navigate these challenges as we explore a potential acquisition of your machining and fabrication business.