Manufacturing Businesses For Sale

There is almost a paradox when it comes to buying a manufacturing business for sale in Canada.  There are almost daily news media reports that the manufacturing base of Canada and, more specifically, southern Ontario is shifting overseas.  Despite this though, it is not easy to find a manufacturing business to purchase.  One would have thought that many owners would be eager to sell while they still can and that there would be a glut of them in the marketplace.  There is not though.

Consider that the corridor that runs from Toronto west across the QEW to Hamilton then through to St. Catharine's and Niagara Falls, Ontario is the heartland of the country's manufacturing base.  It is aptly named the Golden Horseshoe.  There is certainly no shortage of companies.  The challenge is finding one worth buying.

This article will examine some the drivers of value in a manufacturing company to look for in a buyer and also some common pitfalls.  We will also present a list of some common factors to examine in the business before you invest your money.

Types of Manufacturing Businesses That Are at Lesser Risk of Moving Overseas
As a general rule, if you find a business that produced a proprietary product with specific processes or trade secrets that are not readily available to competitors, then the risk of such a business moving to places like China or India is probably diminished.

Also, manufacturers that serve their clients by proving ‘just in time’ inventory are at a lesser risk since there is a much lower time to ship finished goods from the factory floor to the customer.  Many Canadian companies are looking to implement just in time practices to give themselves a competitive advantage over foreign producers who offer cheap labour.  Companies that have just in time implemented with their clients are also typically more integrated with then in terms of operations and, therefore, should have a stronger supplier relationship with them.

Experience Counts When Buying a Manufacturing Company
The manufacturing industry is usually not one where you can merely learn it as you go.  As a buyer, you should bring a level of aptitude to the table in order to successfully run the business.  In some businesses the learning curve is not as steep but in manufacturing where there may be specific processes, machinery or standards involved, inexperience in the field can lead to failure.

Important Variables When Considering a Manufacturing Business For Sale

• What is the source of material inputs of the company (i.e. raw material)?  Confirm that the vendors will continue supplying to you and on similar terms.

• The work-in-progress is an important part of inventory.  Try to determine in advance how the WIP will be valued for any purchase.

• What is the role of the owner/operator in the company?

• Is the equipment new & modern?  Is it properly serviced with appropriate service records?

• Does the company have proper health & safety standards in place?  Confirm that they follow all Ontario and Canadian regulations and that all licenses are in place.

• Are the manufacturing systems current and properly documented?

• How scalable is the operation?  Is there capacity to grow the business or add new product lines to the production?

• Does the business rely on a few large customers for a relatively large share of the revenue?  This is not uncommon in the manufacturing industry.  Do a risk assessment on this to see if a key client was lost how it would impact the business and how quickly they could be replaced, if at all.

• What are the competitive advantages of the company?  Does the business compete based on the quality of their output, price, just in time or something else?

• Is there any risk of obsolescence that can jeopardize the business?  Perhaps new machinery, substitute products or processes that are in development?

If you are serious about purchasing a manufacturing operation, these are but of a few of the questions you should consider.  Consult with your professional advisers before you enter into any agreement.  Working with a Canadian business broker that has experience in buying & selling manufacturers is a great start.   Also, bear in mind that selling a manufacturing business can be just as difficult as investing in one so you should ideally try to find a seller that is prepared for the tough questions and is completely transparent throughout the sale.