A Private Equity Firm Contracted to Buy Andy’s Manufacturing Company for $63 Million on 12-21-23
A private equity company contracted to buy Andy’s specialty manufacturing company on December 21st for $63 million. It is a great story. Our story started a few years ago when John contacted us about his wish to sell his specialty manufacturing company in the Northeast. It was a 30-year-old family-owned business with revenues of $2 million+. The company had about ten employees, including his wife and son. They had the same core customers for twenty years. Their machinery had occasionally been updated and little technology (no ERP and CRM solutions). The company website was dated and more of a place holder. They had no social media presence. I asked if they had a business plan. John smiled and said he had a business plan when he started the business, but none since the original plan. John saw no reason to make investments in marketing and technology. “Besides, I cannot find the labor I need in this area anyway.” In short, it was a lifestyle business from which John took home about $300,000 a year. He wanted $2 million for his company. He settled for $1.2 million. John’s company was bought by Andy.
Andy took over his father’s specialty manufacturing company (started 25 years ago in the South) in 2015. It was a $2 million+ business. It was a mirror of John’s business. Andy watched his father labor all those years. He loved his father but did not want a lifestyle business. He wanted a business to deliver the financial rewards to retire early and provide for his family.
Andy brought in a consulting firm to help him update the business. They helped him develop a business plan out of the gate. He took that plan to the bank and took out a $500,000 line of credit putting his house up as collateral. Over the next two years, the consulting firm helped Andy implemented a manufacturing ERP system, improve performance efficiency, and provided fractional operational, CFO, and sales and marketing services. They launched an aggressive marketing strategy to complement the investment in upgraded machinery and technology. Several employees who had been with the company for more than 20 years pushed against the change. Andy helped them transition out of the company. He paid top wages to attract new employees. His revenue per employee grew from $200,000 per employee to over $300,000 per employee. In two years, company revenues grew to $5 million with EBITDA of 25%.
Andy decided to buy small specialty manufacturing companies and duplicate the strategy of his company. He bought four companies including John’s. His line of credit was raised to $2 million. By the fourth acquisition, Andy used cash and an earn-out strategy. He leveraged accounting, marketing, and technology across all five entities. 2022 revenues for the ‘new’ company were now $30 million at 28% EBITDA. The company revenues increased in 2023. A private equity firm is rolling up manufacturing companies. The contract enacted on December 21st is valued at six times EBITDA. They are hoping to close in the next ten days.
This story could have been John’s story. Andy had the vision and took the calculated risk. Andy realized, while no one knew his business better than he did (Afterall he grew up in the business.), he did not have the business, financial, marketing, and technology knowledge to do it himself. Andy did not want a lifestyle business. He wanted a business to deliver the financial rewards to provide for his family and to retire early. He turns fifty-one in late January – with $45 million net after taxes and fees. Congratulations Andy, Enjoy this holiday season.
