How To Sell A Chemical Plant For the Best Price
These 5 factors can severely impact the worth of your chemical manufacturing plant.
It’s no secret that the manufacturing industry in the United States is massive, making it a popular sector among buyers looking to purchase a business. One of the largest sectors within the industry is chemical manufacturing, which is made up of around 10,000 companies and generates an estimated $812 million dollars in annual revenues. Chemical manufacturing creates products such as paint, resins, pesticides, alcohol and chlorine, just to name a few. The United States is a leader in global chemical production and our country alone produces 15% of the world’s chemicals and products from this sector represents about 12% of our nation’s exports. Chemistry is also one of the fastest-growing sectors in manufacturing, with 2014 numbers putting chemical production ahead of automotive and aerospace. Due to the steadily declining oil prices which make for lower raw material costs, experts are predicting a 9% growth increase for chemical manufacturing next year. The chemistry sector is also a massive job creator and statistics show that for every one chemistry job, 7.5 new jobs are generated in other sectors. Growth trends and profit margins make chemical manufacturing a steady and rewarding industry to own a business in and more buyers are entering the market looking to invest and acquire small manufacturing businesses.
As the owner of a chemical manufacturing firm, you may want to begin evaluating your options and take advantage of this rare opportunity known as a “Seller’s Market” by planning ahead for your future and the future of your business. Every business owner should know the value of their business, even if they are not ready to sell, and we can tell you. To give you an idea of what formulas are used during the valuation process, we have provided some multiples below. Please keep in mind that many factors go into valuing a business and only a professional broker can tell you the true value.
- .5-2x annual sales includes inventory
- 4-9x EBITDA
Now that you have an idea of how valuations are calculated for chemical manufacturing firms, you can begin making the necessary changes to ensure your business secures the highest multiple possible. After selling dozens of manufacturing firms over the years, we have compiled a few suggestions to help business owners prepare their chemical manufacturing firms for sale.
Customer Concentration
As with most businesses, client concentration heavily dictates the ease of finding a buyer. Most buyers are concerned when the financials show large volumes of revenue tied to one customer and in this field, 40% of sales are usually tied to other manufacturing firms. While selling to other manufacturing firms is inevitable in the chemistry field, business owners should be wary of the concentration to each individual customer. The hazard in large sales volumes to other manufacturing firms is that their business will affect yours. If their sales are down, yours will go down with them. Diversifying your client base will help lessen the impact of a manufacturing dip that one sector is affected heavily by, whereas others are not. Buyers will be more attracted to a business that shows a balanced client concentration because it decreases the risk and evens out the cash flow.
Supply Chain Efficiency
Maximizing your supply chain efficiency will not only make for a smoother manufacturing process, but it will also save you money in the long run. There are many factors that go into optimizing your supply chain but one of the biggest components is workplace safety. Business owners spend millions every year on work-related injuries, so creating a safe, ergonomic work environment could cut down expenses, reduce sick days and prevent lawsuits. Being in the chemical industry, risk management and accident prevention are key. Make sure employees are wearing the proper protective gear and disposing of chemicals in a safe way. Workplace safety is better handled with a good offense rather than defense, and working to improve conditions now can save you thousands down the line. Buyers will also feel more secure in your business knowing that your safety initiatives likely contributed to fewer claims.
Patents
Patents are an excellent way for small business owners to secure their futures by protecting their innovations. While the patent process can be costly and will not directly affect the valuation, your business could still potentially save thousands and avoid being undercut by a knockoff brand. Smaller chemical manufacturers have more to gain by patenting their products, especially since a large portion of their sales are usually to other manufacturing companies, giving them a vested interest in your product. If you have been thinking about patenting your products but aren’t sure where to start, this guide gives an easy overview of the steps to completing an application.
Patenting a product is not easy, but it can be worth it. Having a patented product allows you to corner the market with your invention, bringing in more sales, securing more client relationships and showing buyers that your business has a stable future.
Eco-Friendly Initiatives
Even the smallest chemical plants can leave a huge environmental footprint. Manufacturing has made great strides over the past 20 years to lessen the impact it takes on our planet, and many of these initiatives come directly from the chemistry sector. Implementing green initiatives at your chemical plant can help you avoid hefty fines, take advantage of some tax credits and show buyers that your business values conservation. Our society is beginning to place a higher value on preservation and even a few small tweaks can make a huge change for our environment. Installing solar panels can reduce your utility costs while utilizing a clean, renewable energy source that also offers a nice tax credit. A waste management program can ensure that you are properly disposing of hazardous chemicals while also saving yourself from fines and OSHA violations. Green initiatives at a chemical plant can save you money and also pave the way for buyers to further develop your program once they take over.
Chemical Security
It’s helpful for much all manufacturing businesses to have some safety and green initiatives in place, but due to the nature of your business, the chemistry sector should take extra precautions. Implementing a chemical security plan is crucial when working with chemicals that may be hazardous to living beings or the planet. The first step to setting up a successful chemical security plan is creating emergency and disaster response teams. We recommend writing a manual with solutions and plans for every possible emergency scenario, then appointing members of your staff to react in appropriate ways. Publishing an official guide for your staff to abide by is a huge undertaking but reduces risk in the long run. Your emergency response plan should include frequent risk assessments and training to keep everyone current. Here is some helpful information on what belongs in an Emergency Chemical Response Plan. In addition to a formal security plan, spill stations that include safety gear and clean up materials placed throughout your facility could save time in case of an emergency.
Even if you are not ready to sell your business, the time will come when you need to plan an exit strategy. Now that you know how you can increase the value of your chemical manufacturing business, you can begin taking steps now that will ensure you lock in a higher multiple later on. At Viking Mergers & Acquisitions, we can help you understand where your business stands today and how far you need to go. Every business owner should know what their business is worth and we can tell you with a no-cost, no-obligation business valuation. Prepare yourself for the future and begin planning today – you’ll thank yourself later.