Seeking advise on a deal that would require relocating the business
November 14, 2022
by a searcher from Northwestern University - Kellogg School of Management in Deerfield, IL, USA
I'm evaluating a business that would need to be relocated by the end of###-###-#### Their lease is up and renewal is not an option. The business is a manufacturing company with large machinery that would need to be moved.
I don't have any estimates, but I assume that this would be a costly move and would hit the profitability of the business in###-###-#### Does anyone have any suggestions on how this can be accounted for in the deal?
from Northwestern University in Naples, FL, USA
You will likely need to get new permits (hazardous materials, air pollution, city/county/state inspections, etc.) since many permits are location specific. In some cases, depending upon the type of manufacturing, the municipalities that are willing to permit your business may be very limited. Once you select a location, you don't control the schedule for permitting and this can lead to significant delays for starting up in your new location.
To execute a move, you will likely need to sequence vendors (rigging, electrical, plumbing for air & water, etc.). Some equipment requires specialized vendors to move and these suppliers tend to be in demand. On a tight timeline, if any of them miss a date (which will almost certainly happen), you face a potential cascade of further delays because the subsequent vendors in the timeline may not have the capacity to slide their schedules backward without further delays to your project.
Furthermore, you need to understand how moving will impact your ability to retain your workforce and what happens if a significant percentage of the workforce quits or key personnel quit. Most ETA-size manufacturing companies rely on tribal knowledge & losing several key personnel could mean you no longer have the ability to make the items you manufacture.
You will need to ensure that you have sufficient capital to pay for the move & the associated unanticipated costs (broken equipment, stuff that doesn't work when hooked up in the new location, new air/water/electrical hookups, damaged or lost inventory, expediting fees, etc.).
Finally, while undertaking this move, you will have to build trust with employees, suppliers, & customers and maintain compliance with your bank covenants. All of this requires an immense amount of time and is likely more than one individual (no matter their experience, skill, intelligence, etc.) can effectively manage. This is costly both in terms of your personal stress level as well as opportunity cost (wouldn't you rather spend time selling more widgets, figuring out how to make them more efficiently, etc.?).
Having moved several factories in my career, this is not a risk to undertake lightly. At the very least, you should budget way more money and time than you anticipate for the move. More pragmatically, It's hard to imagine the upside of this opportunity being worth the risk.
from Harvard University in Fort Wayne, IN, USA
So yeah, it’s insanely difficult to do, let alone do right, let alone do right in a cost effective way, let alone do right in a cost effective way when you are brand new to the team and company. And when you think about baking it into the deal price, you have to realize that this will come from your cash flow, not the sellers, and so early that you basically will need to raise the full purchase price and the additional cash flow to get you thru the move and business disruptions. Not a lot of investors are interested in paying for that.
Unless it’s a grand slam business / deal, I would just move on (or re-approach after the move). If it was a grand slam business / deal, will it still be if you ask for all the above risk and costs to be baked into the deal? Proceed with caution or just move on quickly.