CNC Multiples
October 14, 2021
by a searcher from Harvard University in Fort Lauderdale, FL, USA
Anyone have any insight into appropriate CNC machining business multiples? Being fairly equipment heavy, also curious how the value of all of that machinery factors into the multiple, if at all. I very much appreciate it!
from London Business School in Norwich, UK
- Obviously CAPEX is a major one. As a buyer you may want to adjust any EBITDA or earnings metric with both "recurring CAPEX requirements" as well as "immediate CAPEX requirements". The same company on the same financial performance may require urgently some machinery investment or may not so they will command different valuations. On the flip side, a seller may try to add in the valuation certain assets or B/S items connected with very recent CAPEX/investments. Exceptions aside, I would personally try to resist this (in practice, a seller will have known for some time the intention to sell the business so more often than not the business will be underinvested rather than overinvested).
- A less obvious one is utilisation/capacity. Manufacturing businesses have a big operational gearing (ie fixed costs and hopefully decent gross margins) which means they can vary dramatically in profitability on smaller variations in capacity/turnover (once you've recovered your overheads/fixed costs, additional turnover adds quickly to the bottom line). A manufacturing business with spare capacity to allow some growth in turnover may provide a great opportunity to increase earnings significantly (vs a business that would require significant investment/transformation to continue growing).
from Wisconsin Lutheran College in Brookfield, WI, USA