VALUATION OF DISTRIBUTION BUSINESS WITH SIGNIFICANT INVENTORY

I am looking at a reseller/distribution business with substantial inventory size. They keep high inventory to reduce the fulfillment time drastically(and increase margin) of special electronic components. Some of the inventory is multi year old and at times they make a great profit out of it due to its demand. Currently their inventory size is equivalent to 1 year COGS and a portion of that is possibly aged/non-selling. Unless you are into the business it's hard to know the real demand/value of that inventory. I am wondering if anyone here has any experience in valuing such business and structuring a creative deal to ensure you are not stuck with non selling inventory.



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