By Gene Russell, Manex President & CEO
Manufacturing is traditionally a high-asset based operation. These assets have a liquidation value and a “going concern” value. In valuing an ongoing business the major concern for valuing these assets in their “in-place” operating value. As managers, we are frequently looking for the best practices in people leadership, cost leadership, quality leadership, brand leadership, profit leadership, market leadership and industry leadership. If you own all or part of your manufacturing business you should also focus on maximizing the value of your company.
Think of your business as no different than a 401k or an investment account. Invest where the dividends are greatest. Being good at all those other elements often drive value, but you do not want to put value to chance. Let’s say you compete in four main sectors: aerospace, biomedical, defense and automotive. Which sector will drive the highest value when you wish to sell your business? You should know that and the five-year projections for each of the industries in which you compete and supply. Let’s say your true calling is automotive and you really have carved out a niche. Should you continue to focus on and invest in the automotive sector if one or more of your other sectors would drive more value at the time of a sale? Have you studied the typical acquisition models of companies similar to yours? Recent sale prices? Which sectors have the highest rate of growth and projections? Those sectors will most likely pay a higher multiple on EBITDA and Revenue than the slower-moving sectors in your mix. A bit of market research may be necessary. Generally speaking, acquisitions of manufacturing companies include equipment, real estate, less debt and some measure of continued/future growth. There are two truisms in the sale of a company:
- A buyer will always buy the future of a company but pay for its past.
- The buyer will ultimately determine the final price for a company; the seller can only agree.
I have written 4,500-word documents on valuations, but for this blog let’s keep it simple. Managing for valuation is a must. Staying up to date on industry comparisons and performing or having a valuation estimate performed will help you deal and negotiate with investment decisions, strategy, and your retirement. If you wish to follow-up with me please send me an email. I’ve advised clients who were pouring money into a favorite sector and after I delivered a valuation analysis, they pretty much did an about-face into better sectors they had been coasting along in, but not maximizing. As I always advise in all management decisions, play heads-up ball, get your intelligence together, make good choices for you, your employees and your family.
About the Author
Gene Russell is President and CEO of Manex and has over 30 years of senior executive strategic planning, operational management, and consulting experience in the manufacturing and technology sectors. With his extensive knowledge of manufacturing operations, he has developed and implemented key strategic initiatives for companies, allowing them to improve performance and achieve profitable growth. He can be reached at grussell@manexconsulting.com.
