Machine shops, fabricators, precision-component makers and equipment manufacturers. Buyers look hard at the earnings, the equipment, the customers and the people. Kingston Investments advises owners of privately held manufacturing businesses on valuation, buyer identification, negotiations and the sale process, across Ontario from the Greater Toronto Area.
Most manufacturing businesses in our size range are valued on what they really earn, adjusted for the owner and for one-off items, and on how confident a buyer can be that those earnings will continue without you.
Not the profit on your tax return. They rebuild your earnings, then allow for what it costs to keep the equipment productive.
One customer, one key person or one critical machine carrying too much of the business makes buyers and lenders cautious.
A year or two to tidy the financials, document the equipment and build a second layer of management usually shows in the price and the terms.
An anonymous profile, non-disclosure agreements, screened buyers and after-hours plant visits keep the process away from the shop floor until you decide otherwise.
Buyers of machine shops and manufacturers ask about the same handful of things. Each one either supports the price or gives a buyer a reason to lower it, add conditions or ask you to carry more of the risk.
Buyers start with EBITDA, earnings before interest, taxes, depreciation and amortization, then adjust it. Owner pay is reset to what a manager would cost, and personal or one-time expenses are added back. The result, adjusted EBITDA, is the figure most offers are built on.
Buyers like to see three years of reliable statements and a clear, documented list of every adjustment.
If one customer or one industry accounts for a large share of sales, a buyer will ask what happens if that customer leaves, re-sources the work or pushes down prices. Long relationships, written supply agreements and approved-supplier status all help.
Buyers like to see sales by customer over several years, with tenure and any contracts or programs.
Age, condition, capability and how busy each machine is. Lenders financing a buyer often commission an equipment appraisal, and the result can affect how much they will lend, which in turn affects what a buyer can pay.
Buyers like to see a current equipment list with age, condition, utilization and maintenance records.
Buyers separate the spending needed to keep the plant running from spending that grows it. Machines that are overdue for replacement are a cost the buyer will inherit, and it usually comes off the price, directly or through the terms.
Buyers like to see capital spending history and a realistic replacement plan for the next few years.
Raw materials, work in progress, finished goods and receivables tie up cash. The purchase agreement normally sets a target level of working capital to be left in the business at closing, so how it is measured matters to what you receive.
Buyers like to see reliable inventory counts, costing and monthly working capital history.
Who quotes the work, programs the machines, solves the problems and manages the key customers? If the answer is mostly you, a buyer will either pay less, keep you longer or tie part of the price to results after closing.
Buyers like to see a capable production manager, estimator or sales lead who could run the day-to-day without you.
Experienced machinists, programmers, welders and supervisors are hard to hire. Buyers look at tenure, turnover, wage levels compared with the market, and whether key people are likely to stay.
Buyers like to see a stable team, documented processes and cross-training on critical work.
Certifications such as ISO 9001, AS9100 for aerospace or IATF 16949 for automotive, and Canadian Welding Bureau certification for welding fabricators, can keep you on approved-supplier lists. Some customer approvals may need to be confirmed after a change of ownership.
Buyers like to see current certifications, audit results and rework and return rates.
If you own the building, it can be sold with the business, separately, or kept and leased to the buyer. Lenders often ask for an environmental site assessment on industrial property, and any findings can affect timing and terms.
Buyers like to see a clear plan for the property and any previous environmental reports.
A simplified, hypothetical example. Buyers rebuild earnings, then look at the investment the equipment needs. The second step is the one owners most often underestimate.
From the financial statements.
Interest, depreciation, owner pay above a market salary, and one-time costs added back.
Less about $250K a year to maintain and replace equipment. This is the cash flow a buyer can rely on.
If two key machines are overdue for replacement, a buyer may estimate a one-time cost of, say, $600K and take it off the price or ask for terms that protect them. Planned, steady reinvestment before a sale avoids handing the buyer that argument.
Different buyers value different things. Knowing who is likely to be interested shapes how the business is presented and which offers to take seriously.
You don’t need all of this done before talking to an advisor. But the earlier you start, the more of it can be in place before a buyer asks.
Two to three years out
Twelve to eighteen months out
Before going to market
Curious what your shop might be worth?
Send us a few figures and an advisor will review them and get back to you. It’s confidential, and you don’t need to be ready to sell.
Our job is to prepare the business properly, find the buyers who will value it most, protect your confidentiality and manage the process so you can keep running the company.
Sell-side advisory Our full process, step by stepWe go through three years of statements, adjust the earnings the way a buyer will, and review the equipment list, capital spending, customers and working capital.
We give you a realistic value range, the reasons behind it and anything worth fixing before going to market, so there are fewer surprises in due diligence.
We prepare an anonymous profile and a detailed information package, then approach strategic and financial buyers who fit, screening each one for capacity before anything identifying is shared.
Serious buyers meet you and see the plant, usually outside working hours, so employees and customers aren’t unsettled.
We help you compare letters of intent on cash at closing, seller financing, earnouts, the working capital target and your role after the sale, not just the headline price.
We manage the data room and buyer requests, and coordinate with your accountant, lawyer and the buyer’s lender, including equipment appraisals and environmental reviews.
Sell-side mandates and completed transactions from Kingston’s portfolio. To protect our clients, businesses and parties are not named.
Industrial hydraulics
Deal value $6,800,000
Sold
A manufacturer and supplier of hydraulic systems designed for industrial efficiency and durability.
View detailsPrecision machining
Deal value $2,400,000
Sold
A modern machining facility specializing in high-accuracy CNC manufacturing for complex industrial components.
View detailsMetal fabrication
Deal value $2,400,000
Sold
An industrial fabrication company producing metal structures and machinery components.
View detailsIndustrial components
Deal value $2,300,000
Sold
A manufacturer of high-tolerance industrial components, providing machining and manufacturing solutions.
View detailsIndustrial & manufacturing
Published value $2,000,000
Sold
View detailsIndustrial & manufacturing
Published value $1,100,000
Sold
View detailsKingston team prepared strong financial normalization analyses and implemented an effective screening process for prospective buyers. We were pleased with the buyer they introduced, and confidentiality was maintained throughout the year-and-a-half process. Protecting the company’s confidentiality was extremely important to us.
Short answers to the questions we hear most often. Every business is different, so we’re happy to talk through yours.
All FAQsIt depends mainly on what the business really earns once the financial statements are adjusted, and on how confident a buyer can be that those earnings will continue. For most manufacturers in our size range, that means adjusted EBITDA (or seller’s discretionary earnings for smaller, owner-run shops), weighed against customer concentration, the condition of the equipment, the investment it will need, and how much the business depends on you.
A realistic answer is a range, not a single number. You can request a confidential valuation review and we’ll talk it through with you.
There isn’t one reliable industry multiple. Prices vary widely with size, niche, customer mix, growth, equipment, management depth and the buyers who are active at the time. Published ‘average multiples’ often mix very different businesses and deal structures, so we prefer to look at your own numbers and at the buyers who would realistically be interested.
It varies with the size and complexity of the business, how prepared it is and the buyer’s financing. Preparation, marketing, negotiation, due diligence and closing together often take many months, and some sales take a year or more. Equipment appraisals, environmental reviews and lender approval can add time, which is one reason preparation pays off.
Many sellers prefer a share sale because, if the company qualifies, the Lifetime Capital Gains Exemption can shelter a significant amount of capital gains (currently about $1.25 million per individual). Buyers often prefer to buy assets. In an asset sale, the buyer and seller can often jointly elect so that GST/HST isn’t charged on the transfer, if the conditions are met. The structure affects what you keep after tax, so we work alongside your accountant and lawyer on it.
No. If you own the building, it can be sold with the business, sold separately or kept and leased to the buyer. Each option affects the price, the buyer’s financing and your income after the sale. Lenders often ask for an environmental site assessment on industrial property, so it helps to know early what that might involve.
Most buyers of a manufacturing business want the skilled team to stay, because machinists, programmers, welders and supervisors are hard to replace. In a share sale, employment generally continues with the company. In an asset sale, the buyer usually offers employment to the staff it wants to keep. We help you plan when and how to tell key people, and buyers often want those people engaged before closing.
Yes, with care. Buyers first see an anonymous summary, sign a non-disclosure agreement and are screened before receiving detail. With competitors, the most sensitive information, such as customer names, pricing and margins by customer, is usually shared late in the process and sometimes only with a limited group of the buyer’s advisors.
A business broker typically lists a business and responds to the buyers who come forward, which suits many smaller, simpler sales. An M&A advisor, sometimes called a business sale advisor, prepares the business for a buyer’s scrutiny, normalizes the financial statements, approaches suitable buyers confidentially, negotiates price and terms, and manages due diligence through to closing. For a manufacturer with equipment, real estate, key customers and skilled staff, the preparation, buyer screening and negotiation an advisor provides usually matter.
No. Many owners talk to us two or three years before they plan to sell, to understand value and what buyers will focus on. That gives you time to work on the things that move the price, such as customer concentration, equipment planning and management depth.
We adjust the financial statements so buyers see what the business really earns, help you set a realistic price range, prepare the confidential profile and information package, approach and screen strategic and financial buyers, arrange meetings and plant tours, help you compare offers on price and terms, and manage due diligence through to closing with your accountant and lawyer.
Buyers pay for what a business earns after the owner steps back. Here’s how to see where your business depends on you, and what to do about it.
Buyers don’t value your business on the profit in your tax return. Here’s how they rebuild your earnings, and why the measure they choose matters.
After you accept an offer, the buyer checks everything they’ve been told. Here’s what they look at, how it runs and how to keep the deal on track.
Confidential conversation
A first conversation is confidential and there’s no obligation. We’ll give you a realistic view of what the business might be worth, how buyers would see it and what to work on first.
