How to Value a Manufacturing Business to Buy in Ontario | Buyer's Guide

Khaled Baranbo • Apr 15, 2024

How to Value a Business to Buy


Acquiring a manufacturing business in Ontario requires careful due diligence and an accurate understanding of its value.


5 Steps for a Successful Manufacturing Business Valuation in Ontario (Buyer's Perspective)


Here's how to approach the valuation process strategically:


First: Assemble Your Team 


Even before identifying specific targets, engage professionals who will guide your acquisition strategy:

  • M&A Advisor (Manufacturing Focus): Provides industry knowledge, recent deal multiples, and negotiates on your behalf.
  • Accountant: Analyzes financials and flags potential tax liabilities.
  • Business Lawyer: Reviews contracts, ensures compliance, and structures the deal.


Second: Know Your Target 


Define your ideal acquisition. What size, subsector, location, and growth potential best fit your goals? Clarity saves time and focuses your search.

Third: Scrutinize the Financials 


Request at least 3 years of audited financial statements, tax returns, and internal reports. Look for trends, hidden costs, and how they align with industry benchmarks.

Fourth: Assess Beyond the Numbers 


Conduct a thorough assessment:

  • Operations: Plant layout, equipment condition, safety, expansion potential.
  • Customer Base: Are there key dependencies or untapped market segments?
  • Intangibles: Value of brand, skilled workforce, patents, etc.
  • Contingent Liabilities: Potential lawsuits, environmental issues, warranties.


Fifth: Determine the Right Valuation Method 


Work with your advisor to choose the method(s) that best uncovers the business's true value to you:

  • Asset-Based: Sets a minimum value based on tangible resources.
  • EBITDA Multiples: Leverages recent Ontario manufacturing sale data.
  • Discounted Cash Flow: Projects future earnings, especially for stable businesses.
A poster that says sell manufacturing biz on it - how to value a business to buy in Ontario

A Buyers’ Guide: How To Value A Manufacturing Business For Sale? Perspective By M&A Advisor Khaled Baranbo


As an M&A advisor specializing in Ontario's manufacturing sector, I've seen firsthand how crucial a well-informed valuation is for buyers like you. Whether you're expanding your existing manufacturing operation or entering the industry, here's a guide to understanding the worth of your potential acquisition.


Understanding Ontario's Manufacturing Scene


Before diving into numbers, let's get a feel for the landscape:


  • Industry Trends: Is the subsector you're interested in (aerospace, food processing, CNC Machine Shop, etc.) on the upswing, stable, or facing disruption? Ontario has a diversified manufacturing base, so research is key.
  • Competition: Is it a crowded field with big players or room for niche businesses? This informs your bargaining power.
  • Economic Factors: Consider how things like interest rates, the strong Canadian dollar, and Ontario's skilled labour pool might influence the business's future value.


Valuation Methods for Ontario Manufacturing


Now, let's talk about finding the right price. Here are the methods I often recommend to my clients:


  • Asset-Based Valuation: This looks at the fair market value of what the business owns outright – land, buildings, equipment, and even its inventory – minus what it owes. It's a good starting point but rarely paints the whole picture.

  • Income-Based Valuation: This is where things get interesting:

  • Seller's Discretionary Earnings (SDE): Best for smaller operations. SDE takes the net income and adds back things like the owner's fancy car lease or other non-essential expenses.
  • EBITDA Multiples: This is the go-to for larger deals. Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) get multiplied by a number based on recent comparable sales in Ontario. This is where my industry knowledge comes in handy!


  • Discounted Cash Flow (DCF): This one is for mature companies with predictable income. It projects future cash flow and brings it back to today's value. A bit more complex, but powerful in the right situation.

How to Value a Company For Sale Calculator Using EBITDA Multiples

Due Diligence: Know What You're Buying


A fancy valuation means nothing if the business has hidden problems. This is where you roll up your sleeves:


  • Financial Analysis: Get those last 3 years of financial statements along with tax returns. I always advise having an accountant on your team – those folks can spot red flags a mile away.
  • Operations Assessment: Put on those steel-toed boots and tour the facility! Check out the equipment, safety practices, and if there's room to grow.
  • Customer & Supplier Relationships: Are they relying on a few huge clients, or is there a diversified customer base? Are their supply chains reliable, with reasonable input costs?
  • Intangible Assets: What about patents, secret sauce recipes, a loyal workforce, or a recognizable brand? These add serious value.
  • Contingent Liabilities: This is where those hidden skeletons might be. Think potential lawsuits, environmental clean-up issues, or unresolved product warranties. Get experts assessing those risks!


Ontario-Specific Factors Impacting Valuation


  • Seller's Motivation: Is the owner looking for a quick exit or holding out for a top dollar? This impacts your negotiation strategy.
  • Growth Potential: Does the company have a path to scale up, enter new markets, or launch new product lines? Potential equals a higher price tag.
  • Owner Involvement: Will the previous owner stick around to help with the transition? This knowledge transfer can be incredibly valuable.


Get the Right Pros on Your Team


  • M&A Advisor (That's Me!): I help you navigate the sell-side market for high EBITA manufacturing businesses for sale in Ontario, understand Ontario-specific multiples, and negotiate like a pro.
  • Accountant: To make sure those financials add up and to understand the tax implications of the deal.
  • Business Lawyer: They'll structure the purchase agreement to make sure you're protected and those Ontario regulations are all buttoned up.


Get an M&A Deal Team On Your Side.


A Word of Caution: While fancy stats are fun, don't lose sight of the big picture. Does this business align with your vision for growth in the manufacturing sector?


Ready to take the next step? Let's chat about your specific goals and I'll help you find the perfect manufacturing business to add to your portfolio. Contact me, Khaled Baranbo, your Oakville-based M&A advisor and certified business broker today!

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