Melbourne Business Broker Trevor Wantenaar recently successfully completed an acquisition in the Manufacturing Supply industry. Morgan Business Sales Director Dru Morgan caught up with Trevor to discuss some key learnings from the transaction for prospective sellers in this industry. They were:
Sale Price Maximisation – Client Security
Being B2B, manufacturing supply businesses typically have don’t have a huge number of clients like most B2C businesses do. For this reason, potential acquirers like to assess the existing customer base. Looking to determine how risky it is, how secure future revenue streams may be.
A common problem in well-established supply businesses is that clients stay loyal due to a great personal relationship they have with the soon to be departing business owner. This can deter a large portion of potential buyers and needs to be addressed when going to market. This can be done in a number of ways.
In his recent deal, Trevor was able to highlight the raft of new clients that the business had brought on. Showing to a potential acquirers that people are choosing to become customers due to the merit of the operation, not due to a relationship.
Having contracts with clients or having client relationships being managed by someone who will stay with business after an acquisition are other worthwhile and effective strategies.
Sale Price Maximisation – Plant & Equipment Condition
A large portion of the sale price in a manufacturing supply business is typically made up of plant and equipment. For this reason, it’s imperative to plan ahead before going to market. Ensuring that plant is as attractive as possible to potential acquirers.
The sellers of Trevor’s recent business did a great job here. They had documented evidence of a thorough maintenance schedule, a unified fleet of equipment making spare parts and training easier and an extremely clean workshop which gave the impression to all parties who inspected that they have looked after their gear.
Important Consideration – Staff Transition
When considering an acquisition, buyers like to see that staff have been employed for a long period of time. This indicates a strong culture. However it can also pose the question, are the staff loyal to the existing exiting owners or to the business? Will they leave after the acquisition?
The buyers of Trevor’s recent listing were able to see that staff were contracted properly on award wages and had ambitions to move around in the business after the acquisition giving them confidence to proceed with the deal.
Important Consideration – Location Security
A challenge in Trevor’s recent transaction was that the lease for the factory the business was operating out of was close to expiring. This meant that the acquirer had to work with the landlord to ensure a new lease would be offered before proceeding with the deal. A time-wasting and potential deal-killing ordeal. Before going to market, it is highly recommended to have a secure hold on the location that the business is operating out of. Freehold being the ideal.
Buyer Demand
Trevor experienced extremely strong demand on his recent manufacturing supply listing. While he put a lot of this down to the soundness of the business and the realistic price point that they went to market at, he had a number of buyers who were disappointed to miss out, indicating a large pool of buyers for supply businesses.
Would you like to chat about taking your manufacturing supply business to market? Book a complementary consultation with a market expert today.
