Business for Sale
The business: Here's a novel idea: a company that actually makes a product. The business doesn't sell broadband services or energy futures but rather that nearly indestructible wonder of the 20th century: plastic. The company molds and presses parts mainly for top brand names in the sporting-goods industry -- a profitable niche.
To make their business stand out from the hundreds of competitors in the injection-molding industry, the three owners have added several secondary services to their repertoire, including hot stamping (a process of using pressure and heat to apply decals such as logos), welding, assembly, painting, and packaging. They've also purchased specialized equipment that allows them to mold a wide range of shapes and materials, and they've contracted with a mold manufacturer in Asia to help maintain competitive pricing.
One of the owners is inactive in day-to-day operations but holds a majority stake. Because he plans to retire, more than 20 years after co-founding the company, the other two owners have decided to sell their shares as well. One active owner manages the business; the other oversees engineering. They both plan to stay on during the transition period -- and possibly long-term. Many of the other 70-plus employees and managers have been at the company for several years; they're expected to work with the new owner as well.
Price: $5.8 million
Outlook: Fair to good. Although many small injection molders struggle to stay out of the red, this company has consistently won high-margin jobs thanks to its expertise in molding difficult materials. The owners have positioned the company to expand into medical and electronics products, small but growing segments of the business. With new equipment and room to expand at the current plant, a growth-minded owner would not need to spend a lot to boost capacity. Of course, growth is no sure thing: annual output for injection-molded parts has been rising less than 5% in recent years. And competitors outside the United States are a threat, as they can offer cut-rate prices because of their lower labor costs.
Price rationale: Plastics-processing companies tend to sell for 65% to 70% of annual gross revenues. That would mean a range of $5.5 million to $6 million for this company, which therefore seems fairly priced. But another frequently used pricing formula recommends doubling book value. With $2.7 million in assets and no liabilities, that calculation suggests a sales price of only $5.4 million.
Pros: The owners have developed close ties to top manufacturers in their core sporting-goods market and are preparing for expansion into new markets. By offering a variety of extra services, the company has differentiated itself and has won projects from customers who appreciate one-stop shopping. In addition, the company's management team has years of experience.
Cons: The economics of plastic aren't exactly fantastic. With more than 1,000 injection molders in the United States, competition is fierce, driving down prices. Many companies have a concentrated customer base, and this company is no exception. Its top two customers account for 55% of its annual sales; the top seven, 80%. Another danger: raw materials, which make up nearly half the company's unit costs, fluctuate with oil prices.
|EBITDA*|| Owner's |
|2000||$7.5 million||$1.1 million||$165,000|
|2001||$8.9 million||$1.6 million||$165,000|
|2002***||$8.5 million||$1 million||$165,000|
*Earnings before interest, taxes, depreciation, and amortization.
**Salary only for the co-owner who manages the business.
***Projected. Fiscal year ends on October 31.
Inc has no stake in the sale of the business featured. The magazine cannot confirm the accuracy of financial or other information offered by the seller. Inquiries should be directed to David Smith at IndustryPro, at 801-838-7704 or firstname.lastname@example.org.
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