By: Jennifer Fox, President, Transworld Business Advisors of Boston

Have you started asking the question, ‘Am I ready to sell my manufacturing business?’ If you’re a small to middle-market manufacturing business owner considering selling, then you’ve picked a good time. With the steady growth the sector is experiencing, now is an excellent time to sell a manufacturing business in Boston. 

Selling a manufacturing business can be a bit of a different beast when compared to selling many other types of companies, especially D2C. However, with the right knowledge and broker, owners can be assured to arrange the best deal for themselves and the buyer. 

In this guide, we will dive into the economic trends, current industry growth, and buyer demand in Boston’s manufacturing sector. Moreover, we will go over the importance in crafting the right exit strategy for Boston businesses along with professional guidance for the most efficient sale. Let’s dive in!

Why It's a Good Time to Sell a Manufacturing Company in Boston

As mentioned above, the Boston manufacturing sector is currently experiencing a period of steady growth. This can be attributed to a strong market demand, beneficial economic policies, and political shifts. So, let’s take a look at some of these factors and break them down in detail.

Strong Market Demand for Manufacturing Businesses

A current push for reshoring, or bringing manufacturing back to the U.S., is spiking the demand for manufacturing businesses. Tariffs and additional policies are leading companies to localize their supply chains. In turn, this is bringing an uptick in homegrown manufacturing, as well as making these businesses excellent opportunities for prospective buyers. Luckily, Boston is an excellent location for these businesses due to its high industrial activity and proximity to supply hubs.

Favorable Economic Conditions and Buyer Interest

Additional economic conditions and political landscape shifts are also influencing the growth of the manufacturing industry in multiple ways. One of the most significant contributing factors to the current market is the lowering interest rates, which has drawn potential buyers in. Moreover, additional government and state incentives, like the Massachusetts Development Finance Agency (MassDevelopment), are offering additional support and resources to manufacturing businesses.

 Massachusetts itself has shown significant commitment to the development of innovation and technology in the manufacturing industry, especially in biotech. In January, the state invested $500 million into the life sciences sector as part of the Mass Leads Act. 

A great example of the current demand in the manufacturing sector is Transworld Business Advisors of Boston's recent transaction. We helped facilitate the sale of a manufacturing business in Middlesex County, MA. There were many strategic buyers that were interested in the business. The buyer that ultimately bought the business was a perfect fit and was looking to expand their existing product offerings and customer base.

Who Do Manufacturing Companies Sell To?

The primary factor to understand when selling your manufacturing business is the buyer’s market. In other words, who will be buying the manufacturing business? Let’s take a look at the different types of buyers that a manufacturing business may find.

• Strategic Buyers: Strategic buyers are often other manufacturers looking to absorb or expand their operations, gain market share, or acquire new technologies. They tend to look for businesses that can help them to reduce their own costs, improve efficiency, or expand their product offerings.

• Private Equity Firm Investors: The primary goal of private equity (PE) firms is to either improve the value or efficiency of their operations or increase profitability before a sale. In most cases, these buyers will be looking for a manufacturing business with growth potential, high cash flow, or improvability.

• Solo Investors: Manufacturing businesses may also encounter solo investors or entrepreneurs with interest in the business. These types of buyers tend to look for the future view of long-term profitability, stable revenue, and growth potential.

How to Value Your Manufacturing Business

To ensure the maximum value when selling a manufacturing company or business, it is vital to understand the ins and outs of how to precisely value it. In buying or selling a business, it is typically valued as a “multiple.” What this means is simply how much the company is valued for and how much it sells for.

Essentially, this is determined by the business’s ability to generate earnings. We will cover several of the valuation points to consider below.

• Revenue and Profitability Trends: Any good buyer wants to see profit and revenue growth when considering an investment. A history of growth in both of these metrics adds to a higher asking price.

• Customer Diversification and Contracts: A larger and diverse customer base means less risk for the potential buyer. While no customer loss is good, diversification means any potential loss of customer is less of a hit in the event. Moreover, this helps to display predictable revenue streams for the buyer.

• Equipment and Asset Valuation: Modern and functioning equipment is a significant value add for any buyer. It means less potential for failure, added physical value, and potential sale value in the event that they sell it in the future.

• Workforce Expertise and Stability: A skilled and long-term workforce can be a massive selling point for any buyer. Low turnover rate and strong leadership is a less risky investment.

• Intellectual Property or Proprietary Methods: Unique methods or products and intellectual property can be a huge incentive for buyers. This makes a business more competitive in the market, which gives it an inherently higher value over others.

• Location: Manufacturing businesses in Boston may also have a leg up in valuation. Higher labor costs can mean a more skilled workforce, while major connections to logistics and supply chains can cut significant costs.

Curious to know what your business is worth? Use our online Business Valuation Calculator to learn more.

Common Valuation Multiples for Manufacturing Businesses

Businesses are often valued using a term called EBITDA, which stands for “Earnings Before Interest, Taxes, Depreciation, and Amortization.” In other words, this measures a business’s profitability and the changes over time.

Moreover, it can help estimate the acquisition, generating cash flow, and comparing to other similar businesses. Let’s take a look at a real-world example of a business sale.

For instance — the company “Manufacturing R US” is looking to sell with a current EBITDA of $1 million. They have a several year-long record of profit, revenue, and viability. Buyer “Larger Manufacturer A” wants to expand its reach and offerings. Based on current earnings and growth, Larger Manufacturer A agrees to buy Manufacturing R US at a multiple of five, which comes out to $5 million. The expectation here is that the buyer will make up the purchase price in around five years or so.

Timing is Everything: How Long Does It Take to Sell a Manufacturing Business?

One of the most vital factors to consider with a manufacturing business is when to sell a business. In fact, timing is an important factor to consider no matter what type of business is being sold. The general average for selling a manufacturing business based on industry averages is around 6-12 months. However, several factors can help to speed up the process, including:

• Current economic growth or status
• Industry changes or advancement
• Buyer demand and pre-qualified buyers
• Strong financial performance

Several of these factors are currently in the ideal position, which is why it is such a good time to sell your manufacturing business. On the other hand, some factors can slow the process, such as: 

• Complex deal structures
• Weak financial records or performance
• Compliance or regulatory issues
• Market fluctuations

Ultimately, the best way to combat difficulties during the selling process is by well-kept records and compliance documentation, as well as working with a valued business broker in Boston.

Capital Gains and Tax Implications in Massachusetts

There is also the matter of taxes to consider in a business sale. More specifically, long-term vs. short term capital gains, which can play a role in the taxes paid on the sale.

In Massachusetts, short-term gains are levied when a business is sold before being owned for a year. Conversely, long-term gains are when it is sold after being held for a year. This can make a major difference in tax rates. For example:

• Massachusetts Short-Term Gains Tax: 8.5%
• Massachusetts Long-Term Gains Tax: 5%

To learn more about capital gains taxes and minimizing tax liability, read our blog that discusses capital gains on a business sale.

Maximizing Your Sale with a Business Broker

If you’re thinking to yourself, ‘I’m ready to sell my manufacturing company’, you’ve come to the right place with Transworld Business Advisors of Boston. Our massive network brings a heavily qualified team of CPAs, accountants, financial advisors, and attorneys ready to back you in securing the best deal.

Whether you’re looking to sell your small business or a large-scale operation, we are here to ensure you get the ideal transaction and get the maximum value for your business. From valuation to closing, we have helped over 15,000 businesses globally transfer hands—and we can help you, too.

By managing the “heavy lifting” of the sales process, we allow you to focus on running your company while pursuing a deal. This ensures your business remains operational and appealing to buyers, keeping the company’s value high no matter what happens during the process.

We look forward to assisting you in selling your manufacturing business with ease. Contact us for a free consultation.

About Jennifer Fox

Jennifer Fox, CBI, is the President of Transworld Business Advisors of Boston, overseeing marketing, strategy, and successful business sales of all sizes. A Bryant University graduate with a B.S. in Finance, she is a Certified Business Intermediary (CBI) and an award-winning member of the IBBA and Transworld’s Millionaire and President’s Club. Jennifer also serves on the NEBBA board as Past President where she was President and Vice President for six years, fostering collaboration among brokers. With over a decade in investment management, she brings expertise in business development, transitions, and client service. She is also a licensed Massachusetts real estate salesperson. Outside of work, she enjoys hiking and skiing with her family.

Contact Jennifer Fox

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Suggested Next Reading: 

• When is the Best Time to Sell a Business?
• Create Your Business Exit Strategy

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Transworld Business Advisors of Boston is part of the global Transworld Business Advisors network, the world’s leading business brokerage firm. Learn more about our worldwide reach and expertise at Transworld Business Advisors.