Evaluate this manufacturing deal
February 27, 2025
by a searcher in United States
What's your take on this deal?
Asking Price: $6,000,000 ($4M business + $2M RE)
Annual Revenue: $4,900,000
SDE: $1,150,000
Real Estate Value: $2,000,000 (included)
Equipment & Fixtures: $2,000,000
Inventory: $800,000 (not included in the price)
Working Capital: $500,000
Good:
10 minutes from home
50+ years in operation
Diverse Customer Base
Stable revenue and earnings
Long-Term Employees expected to stay onboard
Potential Risks:
The seller is actively involved in sales
High inventory and working capital requirements
Cost of capital will put extensive pressure on earnings
Hiring fabrication and machining specialists may be a challenge
Manufacturing can be affected by market downturns, supply chain issues, or industry-specific challenges.
While my background in sales and marketing can help with growth, my lack of manufacturing background could pose a greater risk
from Cornell University in Kansas City, MO, USA
I'd push for a true up on NWC to a peg your QoE provider can calculate for you instead of paying ~4x EBITDA plus inventory (so really almost ~5x). You also need to be careful that you don't buy dated, unusable, or unsellable inventory.
Talk to commercial bankers and understand their lending products for new equipment. You should be able to borrow a good chunk of the capital you need to fund growth through some sort of ABL.
in United States
2021: EBITDA $450K, SDE $900K, Adjusted EBITDA $675K (less $225K salary+benefits)
2022: EBITDA $750K, SDE $1.2M, Adjusted EBITDA $975K (less $225K salary+benefits)
2023: EBITDA $900K, SDE $1.35M, Adjusted EBITDA $1.125M (less $225K salary+benefits)
I know rent is already factored in, but I don't see the line item in the docs I have.
Aging Equipment & Depreciated Assets: There's 80~ pieces of equipment. A large portion is over###-###-#### years old (1990s-2000s). Many key assets have been fully depreciated with zero book value but are still in use. Likely need for upgrades and modernization of machinery.
Some potential counter offers I'd see could be fair include:
Offer: $6M (including real estate + inventory, but adjusting for equipment age). Alternative Offer (No Real Estate): $4M–$4.5M (buying just the business + inventory, leasing the property).
Would love to know what I'm missing or any other thoughts/ideas you see