How to Calculate the Value of a Machining Business, With John Habe IV

As Graff-Pinkert has gotten more into consulting machining businesses who want to sell their companies, we are constantly learning new things about what determines the value of machining firms.

Wednesday, I flew home after visiting a client we are helping sell its Swiss machining operation. On the plane, I thought back to a favorite episode of Swarfcast in which we interviewed John Habe IV, who has grown his machining company Metalseal significantly by way of acquisition the past few years.

In the interview, John discusses the difficulty in buying companies, which often have emotionally attached owners. It’s often the only time the seller will sell a company. It’s been their life’s work–their purpose. It can be hard to come to terms with a dollar value on your life’s work.

John talks about how the type of equipment in a machining company affects its value. He says that while you might expect a shop with modern CNC equipment to fetch the most money, sometimes a shop with older cam multi-spindles, which don’t have to be constantly replaced at large expense, can actually be quite attractive for a sophisticated buyer if it’s a profitable operation.

We also discussed how a machining company’s cashflow, often called EBITDA in the acquisitions business, can help determine a shop’s buy price. John points out that it’s important to look beyond just numbers. He wants to know how consistent the cash flow has been year over year, if the company is diversified, if it is in cyclical sectors like automotive or firearms.

He looks at a company’s management style. Is the owner constantly involved in the day to day or are they delegating responsibilities to upper management who would remain at the company after a sale.

I won’t give away the whole thing away. Have a listen!

Question: If you had the money and ambition to buy a business, what would be your dream acquisition?

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