Valuation of Distribution business with significant inventory

by a searcher from Carnegie Mellon University - Tepper School of Business

4 years ago

I am looking at a reseller/distribution business  with substantial inventory size. They keep high inventory to reduce the fulfillment time drastically(and increase margin) of special electronic components. Some of the inventory is multi year old and at times they make a great profit out of it due to its demand. Currently their inventory size is equivalent to 1 year COGS and a portion of that is possibly aged/non-selling. Unless you are into the business it's hard to know the real demand/value of that inventory. I am wondering if anyone here has any experience in valuing such business and structuring a creative deal to ensure you are not stuck with non selling inventory.

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intermediary from Harvard University

Inventory consignment is what I have done on somewhat similar deals. You buy a set amount of inventory that will likely sell in the next 6 months and then everything else is on consignment. When you need to sell from that inventory stock, you pay the seller essentially as another vendor. If the inventory never sells, you never pay for it.

6 months ago | like reply | 0 likes

intermediary from Brigham Young University - Marriott School of Management

Pretty tricky deal. I worked on something similar but it was airplane parts, in the end, with such a large inventory, the seller has to be willing to sell the inventory at a major discount and then pay out a certain percentage of the inventory as its sold to the owner as well to sweeten it a little

6 months ago | like reply | 0 likes

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