Deal Review – Acquisition of a Manufacturing Business
Asking Price: $3,900,000
Annual Revenue: $6,400,000
Annual EBITDA: $900,000
Location: Midwest United States
Industry: Precision Component Manufacturing
Customers: Aerospace, Medical, and Specialty Automotive
Assets: $1.2M in Equipment + $500K Inventory Included
Executive Overview
This manufacturing deal presents a highly structured opportunity to acquire a Midwest-based precision component manufacturer specializing in small-run, high-tolerance parts for regulated industries. The business operates out of a 26,000 sq ft facility and serves a loyal base of B2B customers with long-term contracts and recurring purchase orders. With $6.4M in annual revenue and $900K in EBITDA, the company trades at a 4.33x multiple against a $3.9M asking price well within range for the sector given the capital equipment base and client retention metrics.
Of particular note is the deal’s layered structure: the buyer would acquire 100% of the operating company via SBA 7(a) loan, with the seller staying on in a two-year consulting capacity and the transaction optimized for immediate bonus depreciation, yielding potential six-figure year-one tax deferrals. This combination of cash flow, strategic seller involvement, and tax strategy makes the acquisition especially attractive to financial buyers or operators with manufacturing expertise.
Deal Structure and Terms
Asking Price: $3,900,000
EBITDA: $900,000
EBITDA Margin: ~14%
Revenue: $6.4M
Deal Type: Stock or Asset (buyer’s choice)
Financing Structure:
80% SBA 7(a) Loan
10% Buyer Equity Injection
10% Seller Note (subordinated, interest-only for 12 months)
Real Estate: Leased from affiliated entity (option to purchase separately)
Transition Period: 24 months seller consulting agreement ($100/hour)
Included Assets:
$1.2M in CNC and multi-axis machining centers
$500K raw materials and WIP inventory
Fully documented quality assurance systems (ISO-9001 compliant)
Business Model & Service Offering
This company manufactures precision-machined metal and plastic parts used in mission-critical applications across aerospace, specialty medical devices, and performance automotive systems. Components are small-format (fit in palm of hand), complex geometry, and produced under tight tolerances using CNC, EDM, and lathe technologies.
Key Capabilities:
CNC multi-axis machining
Wire EDM & sinker EDM
Prototype and short-run production
Precision grinding & deburring
Surface treatment coordination (anodizing, plating – outsourced)
In-house QA with Zeiss CMM inspection
Clients submit drawings and specifications, receive price quotes, and issue PO-based contracts. Production lead time is typically 2–6 weeks, with expedited options available. The company maintains a library of 8,000+ part files, each tied to repeat purchase patterns.
Client Base & Contracts
Client Overview:
38 active B2B customers
Top 10 clients = 74% of revenue
Largest customer = 22% (multi-year contract renewed Q4 last year)
Average relationship tenure = 9.7 years
No customer churn in the last 18 months
Clients span three verticals:
Aerospace (FAA-certified subcontractors and suppliers)
Specialty medical devices (orthopedic and surgical tools)
Aftermarket performance automotive (racing and restoration)
Most clients place weekly or monthly POs based on standing run rates. While no contracts are perpetual, most operate under MSA-style terms with minimum volume expectations and 90-day forecasts.
Financial Overview
Trailing 12-Month Financials:
Revenue: $6,400,000
COGS: $3,950,000
Gross Profit: $2,450,000 (38.3% margin)
Operating Expenses: $1,550,000
EBITDA: $900,000 (14.1% margin)
Major Expense Categories:
Labor: $1.2M (18 full-time employees, including 2 foremen and 2 machinists cross-trained for 3rd shift)
Utilities & Facility: $130K
Maintenance & Tooling: $85K
Software & Licenses: $30K
Insurance, QA, and Certifications: $80K
The company’s strong margin profile stems from short-run complexity work, low scrap rate (<1.2%), and high machine uptime. Production is demand-driven, with virtually no finished goods inventory and minimal obsolescence.
Asset Detail
The deal includes:
11 CNC mills (3-axis and 5-axis; HAAS and Okuma)
2 EDM machines (Mitsubishi)
3 precision grinders
2 CMMs (Coordinate Measuring Machines, including Zeiss)
Compressors, chillers, and support systems
Forklifts and warehouse handling equipment
Tooling and dies library valued at ~$250K (custom workpieces)
All assets are owned free and clear with current appraisals to support depreciation schedule. Buyer can implement year-one bonus depreciation under IRC §168(k), enabling an estimated $1.2M write-off.
Operational Infrastructure
Facility:
26,000 sq ft leased space zoned M1 industrial
Climate-controlled production area
12’ ceiling height + 2 dock doors
Separate QA lab and CAD/CAM programming room
Fully assignable lease ($7,500/month triple net, expires 2029)
Team:
2 Foremen (supervise shift crews)
12 Machinists (split across 2.5 shifts)
2 QA inspectors (CMM certified)
1 Office Manager
1 Bookkeeper (part-time)
1 Sales Engineer (customer quoting + DFM input)
Owner – 30 hours/week (oversight, major quoting, vendor management)
Transition Plan
The seller will stay on under a formal 24-month consulting agreement to support quoting, customer relationships, and succession planning.
During this time, the seller will:
Introduce all customers personally
Train new owner on quoting formulas and DFM feedback loops
Transition vendor relationships (plating, finishing, inspection)
Support hiring or promotion of a general manager or plant supervisor
Provide engineering support for RFQ evaluation
Compensation is structured at $100/hour with flexible month-to-month availability after the initial onboarding.
Growth Opportunities
1. Add 3rd Shift Production:
The facility and machines can support a third full shift. Current throughput is at 60–65% of physical capacity. Hiring 4–6 additional machinists could raise throughput by $1.2M–$1.8M annually with only 20–25% marginal cost.
2. Aerospace Certification (AS9100):
The business is ISO-9001 certified but not AS9100. Several clients have expressed interest in routing higher-ticket projects contingent on AS compliance.
3. Create Engineering Services Division:
Currently, DFM is included in quotes. Creating a paid design-for-manufacture (DFM) support service could generate pre-production revenue while deepening client stickiness.
4. Expand Direct-to-OEM Sales:
Most business is with subcontractors. Building direct OEM accounts (especially with regional medtech or aerospace primes) could lift margins and create IP-anchored orders.
5. Upgrade CAM Software Stack:
Current CAM software is 3 years behind latest toolpath optimization tech. Upgrading could reduce production time per part by 8–12%, unlocking higher margin per job.
Risk Factors
1. Owner-Driven RFQ Evaluation:
The seller is the sole RFQ estimator. While formulas and worksheets are available, buyers should bring in or develop quoting depth early.
2. Workforce Recruitment Risk:
Skilled machinists remain difficult to source. Labor force stability depends on maintaining current wage competitiveness and investing in retention.
3. Customer Concentration:
While top 10 clients are diversified across industries, the largest accounts (22%, 14%, 11%) pose potential revenue gaps if lost.
4. Supply Chain Volatility:
Material pricing (especially aluminum and medical-grade stainless) remains volatile. The company generally passes through these costs, but timing gaps may affect margin.
5. Equipment Maintenance & Obsolescence:
Machines are in good condition, but 4 of 11 CNCs are over 8 years old. Buyer should budget for phased replacements or CapEx reserve.
Buyer Suitability
This acquisition is well-positioned for:
Strategic Manufacturers: Seeking to expand capacity, geographic footprint, or industry verticals
Private Equity Firms: Targeting industrial or aerospace/defense manufacturing roll-ups
Corporate Executives: With engineering, manufacturing, or operations background looking for owner-operator transition
Search Funds: Seeking capital equipment businesses with recurring B2B contracts
Aggregators: Focused on industrial companies with stable EBITDA and tax-efficient structures
Deal Structuring Summary
Loan Type: SBA 7(a), 10% equity injection, 10-year amortization
Seller Note: 10%, subordinated, interest-only year one, then 6% for 2 years
Bonus Depreciation: ~$1.2M in year-one write-offs under current tax law
Real Estate: Buyer option to acquire separately via SBA 504 if desired
Consulting Agreement: 24-month seller support, renewable month-to-month thereafter
Final Assessment
This precision manufacturing company offers everything a quality acquisition should: strong cash flow, documented systems, tangible asset base, long-term customer relationships, and scalability. The consulting continuity, clean financials, and tax positioning further improve return-on-investment timing for any qualified buyer. For those familiar with operational or financial turnarounds, this asset provides a pathway to both stability and growth.
Deal Rating:
Earnings Quality: 9/10
Asset Backing: 9.5/10
Transition Risk: Low
Customer Contracts: 8.5/10
Scalability: 9.2/10
Tax Efficiency: 10/10
