Exiting Your Metal Fabrication Business: Buyer and Seller Perspectives for a Successful Transition

Exiting Your Metal Fabrication Business: Buyer and Seller Perspectives for a Successful Transition

Exiting Your Metal Fabrication Business: Buyer and Seller Perspectives for a Successful Transition

May 20, 2024

Exiting Metal Fabrication Business

According to Industry Select, the metal fabrication industry includes some 34,000 companies in the US. With 75% of all business owners planning to exit within the next decade (per the Exit Planning Institute), it seems likely that a good proportion of metal fabrication business owners are currently thinking about their exit strategy and how best to maximize the value of their company.

While the market is lively at the moment, a staggering 75% of transactions fail before closing. Even when the transaction is completed and the sale goes through, we have found that a large number of buyers and sellers regret the deal they’ve made. At NuVescor, our goal is to help educate and help fabricated metal business owners prepare better to avoid those outcomes. We’ve gathered perspectives from both buyers and sellers to help you think through your own exit process.

 

Current State of the Metal Fabrication Industry

The metal fabrication industry is in the midst of a significant shift thanks to some key drivers:

  • Rise of Automation: The industry is moving away from relying purely on skilled craftspeople and embracing automation. Equipment like laser cutters, material handling systems, and automated benders and welders are increasing efficiency and reducing dependence on specific skillsets.
  • Consolidation: Due to the growth of automation—and its high cost for smaller shops—the fragmented nature of the industry is changing. Larger players are acquiring smaller businesses to achieve greater economies of scale and invest in advanced automation. The current market fragmentation presents a good opportunity for potential sellers to capitalize on consolidation trends. However, as consolidation progresses, the window of opportunity might shrink.
  • Exit Planning Surge: Industry surveys, as mentioned above, suggest that 75% of business owners plan to exit their businesses within the next decade. This presents a wave of potential acquisition targets for consolidators and strategic buyers. However, as the wave of consolidation continues, buyers are becoming more selective and will likely prioritize companies that are well-positioned to adapt to automation and changing market dynamics.

 

Preparing for a Sale

According to Eric Fogg, former owner of Holland Custom Metalworks, “… the moment you created your business, it was for sale, and that sale is inevitable, whether it’s generational or ESOP or whatever it is, the sale of it is inevitable.” Given that, it is never too early for a business owner to start planning for the sale of the business.

Planning for the eventual sale of your business means having your financial records in order, investing in the business with a view to future value, and putting in place the right management team to run the business efficiently. These are all key factors that sellers will be looking at when considering the value of your business to them. “You have a day job that’s running your business, and this is your other job, which is selling your business,” says Raji Singh, President & Founder of Broadgate Capital. “They’re both jobs, and it takes a lot of work.”

However, planning for a sale also means considering the kind of buyer you want and, most importantly, according to Fogg, thinking about what you will do after the sale. “I would highly encourage you to engage in a new purpose even before the sale starts. Practice it. Get involved. Get your passion for what you view as your next phase started before you sell,” he says.

 

Making the Right Match

As a seller, choosing the right buyer for your business can shape the decisions you make for years before the sale. In a recent article for MetalForming Magazine, we noted the following types of buyers:

  • Strategic buyers may place a premium on a company’s technology and customer base. A strategic buyer could be another metal fabrication company looking to expand its reach or acquire new locations.
  • Private Equity firms are interested in the potential for consolidation. While they might offer a higher price, it’s unlikely to be all cash, and they often require the seller to retain some ownership and stay involved for several years.
  • Internal buyers. While a smooth handover to a trusted individual seems appealing, challenges often arise around financing. If the internal buyer lacks sufficient funds to cover the full purchase price and requires a significant amount of financing, it can keep the seller tied to the success of the business and hinder his ability to retire or move on.

From the seller’s perspective, a good buyer is the one that most closely matches your vision for the company’s future, has a similar or compatible company culture, and allows you to achieve your next move.

From the buyer’s perspective, an attractive company and a good seller will have organized and transparent financials, a strong management team that the buyer can rely on to provide cultural continuity, and a well-organized shop floor that is positioned for future growth.

Additionally, buyers are looking for sellers who have put the time in to prepare for a sale., according to Singh. “From a buying perspective, we’re looking for companies that have been educated on the sale process so that they’re not just kind of kicking tires to see what’s out there,” he says. “I think being prepared to go to market is very, very important.”

 

The Role of Professional M&A Advisors in Ensuring a Successful Exit

“The easy part is finding a buyer,” says Randy Rua. “But to know if it’s the right buyer, you have to do your preparation work.”

That preparation for success is really where professional M&A advisors like NuVescor shine. While a business broker will simply make the introductions, an M&A advisory firm will help both buyers and sellers carefully assess the company’s strengths, weaknesses, and objectives, laying the groundwork for a strategic approach to the sale. Industry-specific M&A firms like NuVescor often include teams of specialists in financial analysis, market research, and operations, ensuring owners have support and guidance on every angle as they go through often complex negotiations and legal considerations.

“Over the years, I’ve realized that the more detailed the LOI, the less complicated it’s going to be when you get to the document stage,” says Singh. “We spell out what kind of assets and liabilities are going to be delivered and provide details of the incurred networking capital. We include how long a seller is required to stay on board with us. It seems like it could be overkill, but from a seller’s perspective, can you imagine going through three months of due diligence and then kicking off legal documentation and finding out there are terms in there that you had no idea existed?”

One of the most sought-after services M&A advisors provide is to walk sellers through the valuation process. A common approach is to use a multiple of EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) which represents the company’s operating performance and profitability. However, with metal fabrication businesses, the valuation can be much more complex as factors like the structure of the deal, the seller’s preference for cash or equity, and how long the seller wants to stick around can all significantly affect valuation.

As we’ve discussed, not every buyer is a perfect match for every business or every seller. M&A advisors can take a tailored approach, helping you develop a realistic understanding of where different potential buyers see value and how to position your business to maximize its valuation potential.

 

How NuVescor Can Help

The metal fabrication industry is undergoing significant transformation, and with a wave of business owners nearing retirement and automation on the rise, a well-planned exit strategy is crucial to maximizing your value. We’ve helped numerous fabricated metal businesses leverage their strengths to achieve remarkable growth and secure lucrative exits. We handle everything from valuation and buyer identification to discreet negotiations and seamless deal closure so you can focus on your well-earned retirement or next venture.

If you want to hear more, check out our webinar, Successful Exit Strategies for Fabricated Metal Business Owners, with Eric Fogg and Raji Singh.

 

Ready to seize the opportunities?Book a Meeting with NuVescor today.

From MetalForming Magazine: Navigating Your Future as a Metal Former: Exit or Expansion

From MetalForming Magazine: Navigating Your Future as a Metal Former: Exit or Expansion

From MetalForming Magazine: Navigating Your Future as a Metal Former: Exit or Expansion

Randy Rua has orchestrated hundreds of successful business merger and acquisition transactions. He is the President of NuVescor, a trusted advisor for manufacturing business owners navigating the M&A process. Here’s sneak peak from his article in MetalForming magazine:

In the booming metal fabrication market, consolidation is the wave of the future, offering unique opportunities for small and medium-sized businesses. With the metal fabrication market valued at around $43 billion and anticipated to grow, fabricators are encouraged to review key steps for navigating this dynamic landscape.

Whether considering an exit or expansion, proactive preparation is crucial for a smoother process and increased options. Understanding buyer options, investing in modern automation technologies, and ensuring financial readiness are just some of the strategies to consider.

For those looking to expand, strategic mergers and acquisitions can be a unique growth opportunity in this fragmented industry. An advisor with industry experience can provide valuable guidance throughout the process. Don’t wait until the last minute, start planning now.

Read the full article from MetalForming magazine.

On-Demand Webinar: Successful Exit Strategies for Fabricated Metal Business Owners

On-Demand Webinar: Successful Exit Strategies for Fabricated Metal Business Owners

On-Demand Webinar

Successful Exit Strategies for Fabricated Metal Business Owners

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On-Demand Webinar: Successful Exit Strategies for Fabricated Metal Business Owners

Tailored specifically for owners and leaders in the fabricated metal industry, this webinar covers the unique aspects of preparing for and executing a business sale in the fabricated metal industry. Learn about market trends, essential preparations, and strategic considerations that can significantly impact the value and legacy of your business.

 

Whether you’re in the early stages of considering an exit or actively planning one, this webinar is an invaluable resource for understanding the complexities and maximizing the potential of your business exit strategy.

 

 

What You Will Learn:

  • Understanding the Current Market for Fabricated Metal Businesses: Insights into the latest trends and buyer behaviors in the sector.
  • Preparing Your Business for Sale: Key steps to enhance your business’s appeal and value, from financial health to operational efficiency.
  • Navigating the Exit Process: An overview of the exit process, from initial considerations to final sale, with a focus on timelines and expectations.
  • The Role of Professional M&A Advisors: How NuVescor’s expertise can guide you through complex negotiations and legal considerations.
  • Real World Experience: Hear from a business owner on their personal experience, lessons learned, and the impact of a well-structured exit strategy.
  • Post-Exit Considerations: Understanding the emotional and financial aspects of life after selling your business.

Access On-Demand

Access the on-demand webinar video and download your copy of the webinar presentation.

Presented By:

randy-bio2
Randy Rua
President, NuVescor Group
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Randy, with a vision and leadership, guides NuVescor towards its objectives, leveraging extensive M&A industry knowledge gained since purchasing a business years ago. Developing a unique process through various firm experiences, he founded Rua Associates in 2010. In 2016, Randy and his wife Tami acquired NuVescor, applying Rua’s methods to enhance client outcomes. Holding a BS in Engineering and an MBA in entrepreneurship, Randy is also a Certified Business Appraiser, Certified Exit Plan
ning Advisor, and a Certified Advisor for the Value Builder System. He has contributed as an adjunct professor at both Calvin College and Grand Valley State University.
randy-bio2
Eric Fogg
Former Owner of Holland Custom Metalworks, Current Chapter President with Truth at Work
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Eric Fogg, Chapter President of Truth at Work since 2018 in Holland, West Michigan, merges his passion for ministry with a solid business background. He notably expanded Holland Custom Metalworks, where his leadership over 12 years tripled the business size, navigated it through acquisitions, and innovated with Kan Ban and custom ERP systems. Prior to his commitment to community and missionary work overseas, Eric’s entrepreneurial spirit was ignited in a family-run machine shop, leading to the acquisition of Holland Pen Company. Fluent in Spanish after a year-long immersion in Costa Rica, Eric’s journey from business owner to missionary highlights his dedication to service and faith in action. Married for 29 years with four children, his life reflects a blend of business acumen and a mission-driven purpose.
raji-si
Raji Singh
Founder & President of Broadgate Capital 
Connect on LinkedIn

Raji is the Founder & President of Broadgate Capital, a private equity firm based in Dallas, TX. Prior to Broadgate, Raji was the CEO & President of Impex, a private-label & branded manufacturer with offices and factories located throughout North America and Asia. After the sale of Impex in 2005, Raji diversified into real-estate & private investing, which ultimately led to the creation of Broadgate. Raji is deeply involved in the global economy and experienced in accounting & finance, marketing, manufacturing, negotiation, and strategy. Raji earned his BA from Pepperdine University and is a graduate of the Owner, President Management Program (OPM) at the Harvard Business School.

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How the Right Advisor Can Optimize the Sale Value of Your Fabricated Metal Business

How the Right Advisor Can Optimize the Sale Value of Your Fabricated Metal Business

How the Right Advisor Can Optimize the Sale Value of Your Fabricated Metal Business

January 31, 2024

The unassuming metal parts that power our lives originate from the fabricated metal industry, a sector shaping everything from soda cans to the cars we drive. But beneath the surface, a revolution is brewing. Automation, once the domain of giants, is now rattling the doors of family-owned shops, forcing a transformation that has reshaped the entire fabricated metal landscape. 

While it can feel daunting, that change also spells opportunity for owners looking to exit their metal fabrication businesses as well as larger firms looking to acquire the in-house fabrication capacity they need. 

 

A Shrinking Landscape, Growing Opportunities

Traditionally dominated by small, family-owned shops, the fabricated metal sector is undergoing a profound shift. Gone are the days when skilled hands alone guaranteed success. Today, scale and efficiency reign supreme, and larger firms with advanced automation are gobbling up market share and leaving smaller, manual shops scrambling. Just like the steel it shapes, the industry is being forged anew, with larger, regional, tech-savvy players emerging as dominant forces.

Amidst this industry transformation, business owners have plenty of opportunities to take advantage of higher multiples and stronger valuations of their firms, but there are also pitfalls to avoid. 

If you’re the owner of a smaller metal fabrication company, you’ve no doubt had the phone ringing off the hook with tempting-sounding offers. But falling prey to the siren song of the first offer and tempted by the promise of an easy exit, some owners are leaving money on the table. In fact, we estimate that- at best- there’s about a 90% chance of the phone offer being the wrong choice for your business. While accepting the easy offer may seem tempting, you’re likely leaving money on the table.  

 

Trust the Process

At NuVescor, we’ve witnessed firsthand the pain of rushed exit strategies. We believe the key to a successful sale lies in a process that helps business owners identify the strengths and weaknesses of their firms, take proactive steps to improve their marketability, and identify the right buyer (not just the first one):  

  • Prepare your business for the future: The companies seeing the highest multiples are those that buyers assess as having the greatest potential. In this market, which means businesses that are some ways through the automation process, have a diversified client base, and have contracts that will continue beyond the sale date. Buyers also want to see the capacity for growth, so it’s important that you don’t put improvement plans on hold or max out your capacity while waiting for offers. 
  • Find the right buyer: While there are plenty of buyers right now, not all of them will be right for your business. Taking steps to Identify a buyer that aligns with your vision will maximize your return. 
  • Strike the perfect deal: The goal is to negotiate terms that protect your interests, whether it’s a structured sale, earn-out, or all-cash deal. The advantage of working with advisors is that we understand the nuances of the deal opportunities and can help translate that knowledge into optimal outcomes for you. 

The fabricated metal industry is evolving. And selling your metal fabrication business can be a rewarding journey. With the right knowledge and guidance, you can forge a deal that shines as brightly as your craftsmanship.

 

How NuVescor Can Help

We’ve helped numerous fabricated metal businesses leverage their strengths to achieve remarkable growth and secure lucrative exits. We handle everything from valuation and buyer identification to discreet negotiations and seamless deal closure so you can focus on your well-earned retirement or next venture. 

Ready to seize the opportunities? Contact NuVescor today.