In the latest episode of our ‘How to sell a business’ series, Dru caught up with Perth Business Broker Glenn Prunster to discuss the ins and outs of selling a metal fabrication business in Australia.
Dru & Glenn have been involved in a number of transactions in this industry and discuss key considerations for prospective sellers. Some important takeaways were:
Sale Price Maximisation – Condition Of Plant & Equipment
A large portion of the sales price of metal fabrication businesses comes from the plant and equipment. Prospective buyers will run a fine-tooth comb over all pieces of plant when making an offer. To get the best possible price, it is worthwhile to make sure everything is in the best possible shape. It is recommended to have evidence of a thorough maintenance program too. This helps buyers feel more at ease that the assets they’re buying are sound investments.
Important Consideration – Workshop Space
The size and accessibility of a metal fabrication workshop is another important consideration for potential industry acquirers. They want a space that is in good condition now and also has the ability to scale up with them. They will also consider how secure a location is. Freehold being ideal, followed by long term leases with options. Short leases can be enough to put off a lot of prospective buyers. The cost of relocating a workshop and potentially losing staff in the process being too high.
Important Consideration – Staff Size & Satisfaction
A risk with purchasing a metal fabrication business is that qualified staff will leave, dramatically impacting output. To minimise this risk, buyers look for operations with multiple qualified staff (e.g. 5+ welders) and/or operations where staff have been in there role for an extended time. This makes it evident to the buyer that there is a positive company culture and reduces the risk for their purchase.
Sales Price Maximisation – Customer Concentration
The business Glenn sold in his most recent metal fabrication transaction featured a client who only had one customer, responsible for 100% of sales. While Glenn still managed to find a buyer for the business, the price was much lower than it could have been if the business had customer diversity. This customer concentration scaring off the majority of buyers, reducing overall demand and therefore the sales price. The general rule of thumb for customer concentration is no one customer being responsible for more than 20% of sales.
Buyer demand for metal fabrication businesses remains strong. Glenn pointing out that Western Australian operations are of particular interest at the moment due to their link with the in demand mining sector.
Sales Price Maximisation – Owner’s Role
A business that has a management team in place and is not reliant on the owner will sell for a higher price than another business that’s reliant on an owner. This is because they can attract a bigger buying pool. Investors as well as people who have the skills to run a business. The metal fabrication industry is no different. Efforts made to put a management team in place before going to market being well worth it.
If you own a metal fabrication business and would be interested in understanding where it may sit in the market, please don’t hesitate to book a consultation with the team.