Manufacturing deals: durable machinery & inventory as a component of valuation

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by a searcher from New York University
in Portland, OR, USA

10mos ago

Manufacturing deals: durable machinery & inventory as a component of valuation

I'm exploring some deals in the light manufacturing space and am curious of folks thoughts on the role machinery & inventory value relative to purchase price? Obviously I'm asking for broad thoughts knowing the specifics of age of machrinery, CAPEX to replace, quality of inventory, et al, is the crux. Seller is wanting a 4.1x multiple on SDE, but FF&E (mostly machinery) and inventory as valued at around 70% of purchase price.

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reply by a searcher 8mos ago
from Duke University in Tulsa, OK, USA

This is a good answer. I would also add that often times the equipment and machinery is overvalued or so niche there is virtually no second hand market for it. Keep it simple and focus on cash flow multiples and make sure you get all the equipment and working capital you need at a fair multiple.

reply by a professional 4mos ago
from CETYS Universidad in Riverside, CA, USA

I have a take on that, happy to chat about it. I wouldn't consider inventory as part of the valuation without looking into their P&L and ensure the material is not obsolete. Best!