Business sale valuations for industrial businesses

Why value an industrial business before you sell it?

Most owners sell an industrial business once. The asking price usually gets framed by a broker's appraisal, a competitor's sale someone mentioned at a trade night, or a rule of thumb about multiples. None of those knows that your main press brake is twenty years old, that a third of revenue comes from one tier-one customer on rolling purchase orders rather than a supply agreement, or that your margins depend on you personally quoting every job. A buyer's due diligence team will find all three, and each one moves the price.

A valuation done six to eighteen months before a sale gives you time to act on what it finds. You can put the major customer relationship into a written agreement, train a second estimator, clear out obsolete stock, or decide to replace the old machine before marketing rather than let the buyer deduct it.

It also shows how much of today's value rests on a record year, a single large project or plant that is due for replacement. That is useful context when you and your advisers decide on timing.

What does a buyer of an industrial business pay for?

A buyer pays for earnings they can keep after you leave, less the capital they will have to spend to keep producing them. That is why the starting point is maintainable earnings, not the profit in last year's tax return, and why capital expenditure gets as much attention as EBITDA. EBITDA is measured before the plant wears out. A manufacturer can report healthy EBITDA while needing heavy ongoing capital spending, and a buyer will price that spending in. Our article on EBITDA and EBIT in industrial valuations explains why the difference matters more in plant-heavy businesses.

To reach maintainable earnings we adjust the accounts for what a new owner would actually face:

• Your role at market cost. If you are the general manager, chief estimator and main customer contact, a buyer has to pay someone, often two people, to do that work. A modest owner's wage flatters the earnings.
• Related-party arrangements at market. Rent paid to your property trust, plant hired from a family entity, or a spouse on the payroll are reset to what an unrelated party would charge or be paid.
• One-off items in both directions. A large shutdown project or a one-time defence order is averaged or removed; so is an unusual loss, such as a relocation or a bad debt that will not recur.
• Sustaining capital expenditure. We compare the depreciation charge with what the plant and fleet actually need to keep running, by asset age and replacement cycle.

The method we choose, and how we cross-check it, is set out on how we value industrial businesses.

How are plant, stock and work in progress dealt with in the price?

Most industrial businesses change hands on a cash-free, debt-free basis with a normal level of working capital left in the business. Equipment finance and hire purchase on the plant are treated as debt, so they come off the headline price before you see it. The working capital piece is where many owners get caught: debtors, stock and work in progress, less creditors, are expected to be at a normal level on completion, usually set by reference to an average over the past year and adjusted for seasonality. Run the stock down before completion and the price is adjusted to match. Our article on working capital in a manufacturing valuation covers how that level is set.

Plant and equipment is part of what produces the earnings, so in a going-concern sale it is not added on top of a value based on those earnings. The exceptions matter: genuinely surplus plant, such as a second laser that has been idle for a year, can be sold separately or added; and where earnings are too thin to justify the plant, what the assets would realise can set a floor under the value. A formal plant and machinery valuation, for a lender or an insurer, is a separate discipline done by a plant and machinery valuer; where one exists we can use it. More on this in how plant and equipment affects business value.

Stock needs the same scrutiny. Slow-moving and obsolete lines are written down to what they would fetch. Customer-specific stock, such as components made to one manufacturer's drawings or consignment stock held for a single distributor, is only worth what that customer will take and pay for.

Which risks will a buyer price into an industrial business?

A valuation does not hide these risks. It quantifies them, so you can fix what can be fixed, explain what cannot, and set a price that survives due diligence. Customer concentration in particular is covered in our article on how customer concentration affects business value.

What can you fix in the year before a sale?

• Document the major customer relationships: supply agreements, panel appointments, rate schedules and price review terms, and check any change-of-control clauses.
• Make sure certifications are held by the company, kept current, and understood by more than one person.
• Build a second estimator or quoting system so margins do not depend on you.
• Reconcile the asset register with the factory floor: remove scrapped items, record finance against each asset, and list anything not used in the business.
• Put related-party leases in writing at a market rent, with a term and options a buyer can rely on.
• Decide what is not in the sale, such as vacant land, collectable vehicles or surplus cash, and separate it early.
• Make the plant decision: replace the ageing machine before the sale, or price it and let the buyer decide.

Our valuation readiness check shows which records you already have and which a buyer, or a valuer, will ask for.

Why not just use the broker's figure?

A broker pricing a fabrication shop will often start from a multiple of last year's profit and a feel for what buyers are paying at the moment. That can be a sensible way to set a list price. It does not tell you what due diligence will do to the figure when the buyer finds that the welding certification sits with one supervisor, or that the largest builder customer has never signed a contract.

An independent valuation is an opinion of market value at a stated date, with the method, the adjustments and the evidence written down, for a fixed fee that does not depend on whether or when you sell. Used alongside the broker's work, it gives you something to test the list price against and a reasoned position to hold in negotiation. We do not sell businesses, act as a broker or take success fees.

What do you receive, and what does it cost?

You receive a written report with the market value of the business or the shares at a stated date, the normalised earnings and every adjustment explained, the treatment of plant, capital spending and working capital, and the risks that drove the result. The sample report shows the structure.

The fee is fixed and set by turnover; the bands and delivery times are in the fee table below and on our pricing page. If the plant or the factory sits in a related trust that forms part of the sale, each additional entity is $795 + GST. We confirm the fee in writing before we start. No hourly billing.

Selling to a co-owner? See shareholder valuations. Handing over to family or managers? See succession and estate valuations.