Contact Us

Selling A Private Manufacturing Company

MC900311320
This article looks at the most common issues and challenges that crop up when selling a private manufacturing company.

Selling a manufacturing company throws up a number of issues that in general are not present for the owners of other types of businesses. Most of these issues revolve around the products the company makes, and the equipment it uses to manufacture them. Despite these challenges manufacturing companies with good intellectual property tend to sell for more than other types of companies of a similar size.
 
What Are The Most Common Issues When Selling A Manufacturing Company?
 
Products

A manufacturing company’s reputation is inextricably linked to the products that it makes. Any buyer will want to be sure that the products are reliable and manufactured to a quality suitable for the markets the company serves. In due diligence buyers will pay a lot of attention to customer complaints, product returns and warranty claims. In essence the buyer will be looking for evidence that the company’s products are of a good enough design, reputation and quality to sustain profits into the future.

Intellectual Property

Manufacturing companies that have a brand or formal intellectual property such as a patent will in general be worth more than companies that custom manufacture to their customers’ designs. Buyers will check carefully that trademarks, patents and designs are properly registered. Make sure everything in this area is in order before putting your company on the market.

Most manufacturing companies do not have formal intellectual property but rather proprietary knowledge bound up in systems, processes and the skills of their people. This creates another set of issues. Buyers will want reassurance that critical knowledge will not leave the company along with the existing owners. In ideal circumstances there will be employees with appropriate knowledge who stay with the business after the sale. If not the existing owners will be expected to offer advice on a consulting basis for an extended period. There may be an opportunity for the seller to extract further value through a paid consulting agreement for this service. Balanced against this the buyers will want to prevent you selling your expertise to competitors, and will almost certainly want contractual restraints of trade against working in the same industry for up to three years.

Stocks

Most manufacturing companies have relatively high levels of stock tied up in raw materials, components, work in progress and finished goods. Buyers will examine stock levels very carefully and pay particularly attention to out of specification and slow moving lines. Problems in these areas can be an indicator of poor quality or badly organized manufacturing operations. It will be difficult to get paid for any stock that is more than a few months old.

Plant and Equipment

A buyer will want to make sure that your company has suitable manufacturing equipment for the products it makes, and that equipment is in a good state of repair. If a buyer feels that equipment will need to be replaced after the purchase, or needs expensive refurbishment, money for this will be knocked off the offer price.

Regulatory Environment

Manufacturing companies tend to be subject to a wider range of regulatory controls than other types of company, and get more attention from the relevant authorities. Environmental controls on waste, emissions and packaging in particular get close attention. Health and safety compliance is another important area. If you have had problems in these areas in the past it will be important to show that problems have been put right.

Customers and Distribution

Buyers will have a strong preference for a company with a broad spread of customers and its own sales force dealing directly with larger customers. Over reliance on distributors and agents, especially in the domestic market, will be seen as a weakness that reduces value. A broad spread of customers is ideal. Any customer or distributor making up more than 20% of sales will attract attention – more than 30% will be a serious red flag.

 

If you are interested in finding out more about these and other issues relating to the sale of a private company one of our business sale experts would be delighted to talk to you in complete confidentiality. Click CONTACT ME to book an initial phone conversation or call us on 01604 432964.

 
We welcome comments on posts, and questions from our readers. Use the “Leave a Reply” box below. We answer all reader questions within 24hrs. If you would like to be informed about new posts on the theme of selling a private company click the “Subscribe” button at the right hand side of this page.

Leave a Reply

Your email address will not be published. Required fields are marked *

*

* Copy This Password *

* Type Or Paste Password Here *

22,131 Spam Comments Blocked so far by Spam Free Wordpress

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

back up ↑
UA-35460329-1