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Finding a buyer for our business?

cross hair

Aluminum
Joined
Jan 16, 2007
Location
Ohio
We have been considering selling the business for the last year, it was initially brought up by one of our vendors wanting to buy us but that deal fell apart, but once the wheels got rolling we decided to keep looking for a buyer. The thing is we don't want any of our customers or competitors to know we are on the market so we are trying to keep it under the radar which makes it difficult.

For those that have sold or purchased a business how did you find a buyer or how did you find the business you purchased?
 
Over here I get a lettre in the mail at least once a month from mediators asking if I am intrested in selling
and if they could be of any help (for a fee off coarse)

Peter
 
We just closed the sale of our business this last April (link here) so the details are still pretty fresh.

This is an easy topic to go "long story" on really quick. But the main things you need to decide on right away are whether you are selling as an "asset sale" or an "entity sale". The easiest way to understand the difference is that one completely liquidates the business as you know it, sells off all the individual assets (machinery, raw material, everything) and you walk away. An "entity sale", also known as a business sale or stock sale, sells the business as a whole functioning system. The business could look exactly like it did the day before the sale, doors stay open, you may even be retained as an employee of the new company.

The biggest difference between the two is the valuation method. One is valued based on what everything can be auctioned off for piece by piece; the other is valued based on it's ability to provide some type of cash flow.

I will tell you right now, most shop owners are not prepared to hear what the market value of their business is as an entity sale. Take your annual EBITDA, multiply it by 5 (for starters), if that number is less than the value of what you think you could auction off your assets for, you're going to have a difficult time if you had hoped to see the business keep it's doors open.

On the topic of potential buyers, if you really don't want customers or local competitors to know your selling, you'll probably have to use a broker. There are plenty of brokers out there, none of them though will understand the nuances of your business the way you do. But, they'll also bring to the table a list of potential buyers you would have a hard time coming up with. Always a trade-off. You could also reconsider whether or not it's a big deal that customers and competitors know you're looking. A business sale can take years. In our case, our competitors knew we were looking and it didn't really change anything.

Long story short, most important thing of all is know your numbers. Know your last 5 years Earnings-Before-Interest-Taxes-Depreciation-Amortization inside and out. If possible, be able to reasonably forecast your EBITDA for the next year. The market makes the rules and in a business sale, EBITDA rules. Good luck, it took us 3 years but I'm glad we did it when we did.
 
Can the business run without you? Do you have your management in place so it is self sufficient? This is a big one. Potential buyers do not usually want a business that the owner (seller) is a key component to it's day to day running. If this is the case then it is not unusual for them to want you to sign an employment agreement for anywhere from 6 months to two years until they can get things set up.

But, I have seen a couple of shops sold to one of their prime customers and if you think about it it makes sense.
 
Since I did a realistic evaluation of my business's worth, I'm making such damn good money on a trifling investment, I can't give it up :D
 
The biggest difference between the two is the valuation method. One is valued based on what everything can be auctioned off for piece by piece; the other is valued based on it's ability to provide some type of cash flow.

I will tell you right now, most shop owners are not prepared to hear what the market value of their business is as an entity sale. Take your annual EBITDA, multiply it by 5 (for starters), if that number is less than the value of what you think you could auction off your assets for, you're going to have a difficult time if you had hoped to see the business keep it's doors open.

On the topic of potential buyers, if you really don't want customers or local competitors to know your selling, you'll probably have to use a broker. There are plenty of brokers out there, none of them though will understand the nuances of your business the way you do. But, they'll also bring to the table a list of potential buyers you would have a hard time coming up with. Always a trade-off. You could also reconsider whether or not it's a big deal that customers and competitors know you're looking. A business sale can take years. In our case, our competitors knew we were looking and it didn't really change anything.

Long story short, most important thing of all is know your numbers. Know your last 5 years Earnings-Before-Interest-Taxes-Depreciation-Amortization inside and out. If possible, be able to reasonably forecast your EBITDA for the next year. The market makes the rules and in a business sale, EBITDA rules. Good luck, it took us 3 years but I'm glad we did it when we did.

This is good advice. You should have a good idea what the approximate value is of your business before you make a decision to sell or auction. If you don't know then you can hire someone to help you.

One piece of advice; it's just a business, there should be no emotional connection to it, that will just get in the way.

If you read my previous post that will give you an idea of what can affect valuation. The thing is that there are many different reasons people buy businesses so you need to sit down and try to figure out how to present it.

Also, if you're still participating in this thread can you give us an idea of the business, what services it provides, how big (large, medium, small, ma & pa) this will help give us a better idea.

Good luck
 
Many cases in this trade the new owner will have different strengths/ specialties- and some shops sell better piece by piece garage sale style than auction. Problem is finding / promoting to buyers for what stuff is reasonably worth instead of bottom feeders ( but a lot of owners got started bottom feeding equipment). It's hard to sell a machine shop
 
We have been considering selling the business for the last year, it was initially brought up by one of our vendors wanting to buy us but that deal fell apart, but once the wheels got rolling we decided to keep looking for a buyer. The thing is we don't want any of our customers or competitors to know we are on the market so we are trying to keep it under the radar which makes it difficult.

For those that have sold or purchased a business how did you find a buyer or how did you find the business you purchased?



I don't have experience selling my own business, but I DO have a great understanding of financial markets, and a penance for leaning towards increasing the value of the employees that built the business. Im gonna throw something completely different at you here.

If I had a multi million dollar business, and I knew I wanted to get out in 3-5 years, and that I wanted it to stay open, then I would make huge efforts to make it employee owned. (and personally, I would probably sell it for less than what its worth. As it most likely would have already made me rich)

the easiest way to do this is Private stock offering. Basically just start selling stock until you're no longer the majority owner. Every time the employees increase their stake, they increase their earnings, and thus the amount of stock they can buy Next go around. And IF you do it right, you should come out handsomely compensated, and a member of the board. (Much less work than 8-5 everyday) You can even offer stock as benefits to help get talent in the doors.


IF that doesn't interest you, you could just go public and sell shares the the general public.


Both of these methods provide the benefit of proving both to your customers, and your competition that you are NOT going away. You'll need a lawyer instead of a broker to incorporate, and you get immediate cash flow to either put into your pocket, or re-invest into the company further increasing its valuation and appeal.

Just a thought. Good luck however you decide to go.



(btw... ignore any comments about not having an emotional connection to it. You built it, you want to see it thrive. just dont let emotion get in the way of reason. Accept your selling, make your plan, and follow through.)
 
I don't have experience selling my own business, but I DO have a great understanding of financial markets, and a penance for leaning towards increasing the value of the employees that built the business. Im gonna throw something completely different at you here.

If I had a multi million dollar business, and I knew I wanted to get out in 3-5 years, and that I wanted it to stay open, then I would make huge efforts to make it employee owned. (and personally, I would probably sell it for less than what its worth. As it most likely would have already made me rich)

the easiest way to do this is Private stock offering. Basically just start selling stock until you're no longer the majority owner. Every time the employees increase their stake, they increase their earnings, and thus the amount of stock they can buy Next go around. And IF you do it right, you should come out handsomely compensated, and a member of the board. (Much less work than 8-5 everyday) You can even offer stock as benefits to help get talent in the doors.


IF that doesn't interest you, you could just go public and sell shares the the general public.


Both of these methods provide the benefit of proving both to your customers, and your competition that you are NOT going away. You'll need a lawyer instead of a broker to incorporate, and you get immediate cash flow to either put into your pocket, or re-invest into the company further increasing its valuation and appeal.

Just a thought. Good luck however you decide to go.



(btw... ignore any comments about not having an emotional connection to it. You built it, you want to see it thrive. just dont let emotion get in the way of reason. Accept your selling, make your plan, and follow through.)


Actually for decades, there has been a relatively easy way to do this- its called an ESOP- an employee stock ownership plan. Its a way of transferring ownership to employees, and getting paid for it. Its legal, well known to accountants, and all figured out, and it has the advantage of having worked successfully hundreds of times over the last 30 or 40 years.
But it takes time, and, to work properly, requires a decent profit - to pay you for your ownership.

Employee Stock Ownership Plan (ESOP)
 
Once you find one do your research on the buyer and their history.
Understand that some may have two sets of books on their past investments.
Dad sold the 5 million a year company, two years out, many things wrong.
His quote "I'd have been better off throwing the keys into the cornfield" as legal fees swamped any gain.
All gone, millions in cash missing, employee retirement funds gone. Bad guy got one night in jail and a year probation.
There are people out there who use buying machine shops to play the system.
They will do the "due diligence" on you, maybe also do it on them.
Bob
 
I've heard Carbide Bobs tale (with variations) a good few times, but 2 stick in my mind.

They had viable businesses of ''moderate value'', which were put on the market, and attracted buyers willing to pay the price - (or there abouts) and a deal was done.
The problems started when the lawyers got involved, (hint - business sales are complicated and lawyers make them more so!) to the point in both cases, at the end of the day, the vendors were very little better off, .....one telling me he would have been better off just closing down and liquidating the businesses assets - yes he wouldn't have had ''quite so much'' (his words) ......but he would have saved himself nearly 8 months of stress and aggravation, .....which was one of the reasons for him selling out in the first place.

X 2 on the sharks, do your due diligence on any prospective buyer, .......some of those bastards are masters at getting the all the assets etc etc while at the same time leaving you holding the baby when it all goes tits up.

SELLER BEWARE!
 
all of the above is even more reason to sell stock in the company. its cut and dry. you remain in control until your share is to small. and its much harder for 10,000 small investors to screw you than 1.

that said, i dont know carbide bobs story, but it sounds to me like the seller was not very well protected in the first place. whoever wrote the initial contract must of done a horrible job. or either someone agreed to something they shouldnt have.
 
Many cases in this trade the new owner will have different strengths/ specialties- and some shops sell better piece by piece garage sale style than auction. Problem is finding / promoting to buyers for what stuff is reasonably worth instead of bottom feeders ( but a lot of owners got started bottom feeding equipment). It's hard to sell a machine shop

I have known of two instances where businessmen purchased a machine shop. One shop was really struggling and really didn't have much in equipment. The other was up and running but a small 12 man shop with antiquated equipment. Neither of these buyers new squat about machining. Nothing. The first shop was turned around and became a very profitable shop. The second shop was grown to about a 75 man shop with some major contracts with major Aerospace firms.

Bottom line: Shops do sell and to unlikely buyers.
 
I have known of two instances where businessmen purchased a machine shop. One shop was really struggling and really didn't have much in equipment. The other was up and running but a small 12 man shop with antiquated equipment. Neither of these buyers new squat about machining. Nothing. The first shop was turned around and became a very profitable shop. The second shop was grown to about a 75 man shop with some major contracts with major Aerospace firms.

Bottom line: Shops do sell and to unlikely buyers.

its very true that someone in the front office can ruin a great business after purchase. just as likely as someone with great business acumen can come in and turn a negative into a positive even with no experience and just a few connections.

case in point. the woman who used her daddy's money to buy a machine shop in NC. place had 5 or 6 dual turret lathes, couple of really nice ycm mills, and a good amount of work she could of used as her base... instead of working her ass off every day, she plastered "woman owned" on every piece of company advertising or paperwork she could find, and barely came to work. they made it a little over a year. I mean..90% of the people on this board could take a business with the equipment and just make gobs of money. (side note: that woman is why I no longer purchase ANYTHING from ANY business who relies on "woman owned, minority owned, disadvantaged small business, or any other "catch phrase" to sell their product other than years of evidence and hard work." ...same goes for steel suppliers ...ford steel.)


I saw a man pass away with over 500 million in the bank. He owned oil wells, multifloor buildings, hundreds of acres of city land..etc. and I personally knew of 4 employees who were on food stamps. came to work every day, worked on the weekends. still on assistance. When He died I made my mind up that whatever business I own will be left to my kids first, and the employees second. They are the ones that build the company anyways, and no one should dedicate 5 years of their life and be on food stamps. CPP Global sold to its employees and became almost a 100 million dollar company. then the majority owner sold to some nitwit and from what I hear the guys down the street have most of their business now.
 
all of the above is even more reason to sell stock in the company. its cut and dry. you remain in control until your share is to small. and its much harder for 10,000 small investors to screw you than 1.

That's all well and good, but the only way you are going to get 10,000 investors is with an IPO (Initial Public Offering) and you don't even want to think about the costs associated with that. As it is, if the OP's shop was in the IPO league, I doubt he'd be asking advice here. You CAN sell shares to the public, with only a small amount of oversight by the SEC, but you wan't sell them to 10,000 people.

As was mentioned above, the easiest way to get multiple shareholders who understand what they are buying is with an ESOP, but the number of shareholders is limited to the number of your employees.

Dennis
 
That's all well and good, but the only way you are going to get 10,000 investors is with an IPO (Initial Public Offering) and you don't even want to think about the costs associated with that. As it is, if the OP's shop was in the IPO league, I doubt he'd be asking advice here. You CAN sell shares to the public, with only a small amount of oversight by the SEC, but you wan't sell them to 10,000 people.

As was mentioned above, the easiest way to get multiple shareholders who understand what they are buying is with an ESOP, but the number of shareholders is limited to the number of your employees.

Dennis

its not always as expensive as you think . you can start with a DPO. get your money and valuation up. get your books in order and thing go for a listing on the OTC market. Its not as expensive and the requirements arent as high as for the big stock exchanges. Mining companies do it all the time.
 
its not always as expensive as you think . you can start with a DPO. get your money and valuation up. get your books in order and thing go for a listing on the OTC market. Its not as expensive and the requirements arent as high as for the big stock exchanges. Mining companies do it all the time.

True, but to quote the OP, "The thing is we don't want any of our customers or competitors to know we are on the market so we are trying to keep it under the radar which makes it difficult."

One of our competitors (a manufacturer, not a machine shop) did this maybe fifteen years ago. One of the things they needed to do was provide a prospectus and financial statements to prospective buyers. Anyone can be a prospective buyer, and they need to respond. So, we wrote and ordered the financial package. It made interesting reading, and helped us with long term product choices.

I also had some dealings with a bankruptcy that resulted from a failed public offering. IIRC, the chairman of the creditor's committee said the company had paid a quarter million in fees, and had absolutely NO takers.

Not, I would say, for the faint of heart.

Dennis
 








 
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