Buying the Bones

November 15, 2022 - 2:48pm -- Selcuk Gulboy

Two clients in the machining business. One is going up for auction soon. The other hopes to sell for $10M. Both are family businesses run by brothers. One runs mostly National Acmes, the other Davenports, Wickmans, and Brown & Sharpes.

One has well-trained operators, the other says they are quitting the business because they can’t get an operator nor setup man.

The one that is auctioning off their machines did mostly military and medical, the successful shop is almost all automotive.

I do not know all of the intricacies of these two firms by any means, but I have been involved with selling many businesses, some of which have been successfully sold and others where the owners were forced to liquidate.

What have I learned from my foray into selling and buying businesses?

First, there is no secret sauce, but businesses have value and often it is not directly related to the company’s physical assets they have to sell, which is usually why they call folks at Graff-Pinkert in the first place. Companies like us understand that the real value is not in 10-year-old Haas mills and 30-year-old 1-1/4″ National Acmes. The trick is to find the party able to step in, run the business, and make at least as much money as the current owner and preferably more. What they are usually paying for is the skill and the motivation of the current workforce and access to the company’s long-term customers.

We recently bought and resold a business that consisted of an owner, his wife and siblings, a handful of seasoned employees, and a couple million dollars in sales. They had paper thin earnings but had made a good living through the years, treated their people well, and regarded their customers as friends of the family. There was no real estate, and the owners were retiring. The ultimate buyers were from out of state and had little chance of hiring the employees. What the buyers wanted was access to prime new clients and the machines, which were already set up to run the work.

The screw machines had enhanced value because the buyer could move them, quickly put them in place, and start running the work. The buyer knew that their company’s greater size would allow them to buy material for less money than the original owner.

The machines had value because they were an entre to several million dollars of steady work.

When Graff-Pinkert talks to potential buyers of machining companies, they know what they want. The physical assets are significant only if they give access to new work that they can retain and run profitably. They ask about EBITDA, “earnings before interest,  taxes, depreciation, and amortization,” but that is because lenders care about that in setting the amount that they will lend to buy the business. But smart, experienced buyers are not only concerned with EBITDA. They care about the quality of transferable employees, obtainable new customers who are likely to expand their sales with upside potential, and visible improvements they can make with their expertise and size.

The business that may be worth $10 million has a strong heartbeat.

The business going up for auction is a corpse. Nothing is easily transplanted or revived.

In cases similar to either of these, I am available for a free consultation. Graff Pinkert will buy your bones. If you are in fighting shape we can also help. If you are somewhere in the middle, that’s where we can put the stethoscope on your chest and suggest a course of action. You do have options if you look for them.

Question: What would it take for you to sell your business?

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