Client: Engineering company.

Turnover: Turnover flattening out at $13m.

Challenge:

The business had recently upgraded its main equipment and had ample capacity and was keen to pick up extra profitable volume, without creating a price war in the market.

Targeted Seller:

A smaller engineering company owned by a retiring baby boomer with turnover of $1.2m was a logical fit.  The seller had an adjusted EBITA of $180k and was looking at selling the business for $550k.

The product synergies were reviewed and matched the  purchaser’s capabilities and capacity. The seller owned his property and was happy to lease it or sell it. The seller’s equipment was in good order but was not required by the purchaser.

The Deal:

After reviewing both organisations, it was established the purchaser could absorb the business onto its own site with none of the seller’s equipment or overheads excluding two staff members.  It was calculated that the return for the purchaser would be in the order of $450k pa.

We negotiated a purchase price of $340k and agreed the seller could sell the equipment under agreed terms (as not to compete). While he was of the belief he could sell the equipment for $200k, the purchaser did not want to be involved in the process of buying and reselling used equipment.

Based on the purchase price the Return on Investment was targeted at over 130%. We then calculated a sensitivity analysis based on retaining 80% of the sales and the return on investment was still over 105%.

This deal was identified and signed off within four months.