Aerospace and Defense (aka A&D) manufacturing and distribution businesses have always been acquisition favorites with both Private Equity Groups and entrepreneurs. Consequently, aerospace & defense manufacturing businesses for sale are in high demand when they come to the market, and these businesses sell for higher earnings multiples than many other businesses.
Aerospace & Defense manufacturing businesses are more complicated to sell than most businesses. Many of these businesses are on AVLs (approved vendors lists), have ongoing government and aerospace or defense contracts, CAGE numbers for military parts, and quality approvals-certifications from AS9100 to ISO-9001. These factors make an ordinary Asset Sale nearly impossible because these approvals, contracts, and qualifications are tied to the corporate entity and would be lost in an Asset Sale.
In Asset Sales a new corporate entity is formed which in many cases requires reapprovals, contract assignments, a new CAGE number, quality system re-approvals, etc.
For these reasons, most Aerospace and Defense manufacturing businesses are often sold through a Stock Sale which leaves the corporate entity intact with the buyer buying the stock (shares) of the business from the seller. A Stock Sale preserves the corporate EIN, quality approvals, CAGE number, and contracts, only the stockholders and directors change.
Pacific Business Sales specializes in the sale of businesses with licensing, contracts, and approvals such as aerospace-defense manufacturing businesses that require a stock sale to ensure the operational continuity of the business post-closing.
Manufacturing & Distribution businesses are valued differently from common Main Street businesses. These businesses have different earnings valuation multiples, inventory, and WIP (Work in Progress) all of which are key factors in determining the market value of the business.
Preparing to Sell Your Aerospace–Defense Manufacturing Business: Exit Strategy & Valuation
Whether your timeline to sell your business is the next few years or the next few months, preparation is key to a successful sale and maximizing the value of your business.
Preparation & Exit Strategy
Developing an Exit Strategy and preparing to sell the business is a critical first step. Aerospace-defense manufacturing companies are no exception.
Advance preparation will maximize the value of your business, reduce the time on the market, and allow time to implement tax strategies with your financial advisors which may result in minimizing and/or deferring the taxes on the sale of the business.
If your timeline to sell your business is short-term, your focus will be reviewing your financial statements and preparing for the sale.
Read more about Preparing to Sell Your Business
If your timeline is further out, now is a great time to start developing an Exit Strategy to increase your company’s value, marketability, and minimize taxes on the sale of the business.
Read more about Developing an Exit Strategy
Selecting the Right California Business Broker for Your Aerospace-Defense Business Sale
Aerospace & Defense manufacturing company business sales are unique and more complex than ordinary business sales transactions. Consequently, it is vital that your business broker is familiar with these transactions and understands your business.
Pacific Business Sales often sells Aerospace & Defense manufacturing and distribution companies in the form of a Stock Sale as opposed to the more common Asset Sale. The Stock Sale leaves the company’s entity intact and only the Directors and Stockholders change. This leaves all of the contracts, agreements, vendor approvals, quality certification, etc. in intact because the corporate entity has not changed, only the stockholders.
In an Asset Sale the company’s assets (all assets, tangible and intangible, eg IP) are sold to a new corporate entity. As a result, contracts, agreements, and approvals with your company must be assigned one by one to Newco (the new corporate entity DBA your company). As you can imagine, this can be complicated, time-consuming, and risky with government contracts, which is why our firm prefers the Stock Sale in these situations.
Read more about Stock vs Asset Sale
Confidentiality in Aerospace Business Sales: Why it Matters
Confidentiality of the prospective sale of your business is a key concern of every business owner. Business owners are always concerned about customers, employees, vendors, and competitors finding out the business is for sale.
All of our business for sale ads are written to preserve the confidentiality of the business. The name of the business is not mentioned, the specific type or services are not specified, and the specific location is not shown.
The purpose of the ads is to generate inquiries and requests for an NDA to be sent to prospective buyers. No confidential information is sent to prospective buyers until they have signed a Confidentiality Agreement (NDA) and completed our Buyer Profile providing information on their financial position and experience.
Broker Fees for Business Sales; What to Expect
Pacific Business Sales does not charge any upfront fees or monthly retainer fees. Our Broker Commission is paid at the close of escrow or closing of the transaction.
Upfront “marketing” fees and monthly retainers are charged by some firms, and this is something you should ask prospective brokers before engaging them.
Determining the Market Value of Your Aerospace Business
Pacific Business Sales uses professional business valuation software from Peercomps.com for our free-Market Value Analysis. Peercomps uses comparable sales data from closed SBA financed transactions of similar types and sized business to yours with industry-standard valuation methodologies to calculate the market value.
The Market Value Analysis is the first step in our engagement process. We prepare a comprehensive market value analysis of your company and review it with you before we send you a representation agreement to engage our firm in the sale of your aerospace business.
Marketing Your Aerospace-Defense Business for Sale
Confidential Information Memorandum (CIM) & Marketing Your Business
The CIM (Confidential Information Memorandum) is a critical document in the successful sale of your Aerospace-Defense business. The CIM is sent to prospective buyers after they have signed a Confidentiality Agreement (NDA) and is the marketing brochure or prospectus for your business.
The CIM is what the prospective buyer uses to make their initial decision to take the next step and meet with the broker to discuss the business and second step to meet with the seller and broker to discuss the business in more detail.
Pacific Business Sales has a reputation of providing exceptional CIMs with comprehensive details about the company. Our CIMs are usually 30 to 40 pages with details about the company’s history, recent financial performance, products and services, opportunities for growth, etc.
Financing the Sale of An Aerospace Business Transaction
Pacific Business Sales has direct relationships with SBA PLP (Preferred Lender Program) lenders and over 90% of our transactions utilize SBA financing.
SBA financing is our preferred financing structure because it offers buyers 10-year financing with just 10% down, and it offers sellers more cash at closing.
Most of our SBA financed transactions have either 10% down, with 90% bank financing or 10% down, 80% bank financing, and a 10% seller note typically for 3 to 5 years.
Read more: SBA Financing for the Sale of Your Aerospace Business
Negotiating the Business Sale-Transaction Structure, Terms and Taxes
Negotiating the transaction structure and terms are critical because this affects your cash-at-closing as well as your taxes on the transaction.
An offer with a high multiple of earnings may look attractive on the surface, but if the terms contain “earn-out” language, or working capital is included in the price, or a large seller note, the net result for you may not be what you were expecting.
Likewise, if the buyer’s offer is an Asset Sale, and they intend to allocate a high value to tangible assets, your tax rate will be significantly higher than a Stock Sale.
These are just a few points that come up in negotiations and this is where a business broker with experience in complex transactions and aerospace business sales is vital to a successful transaction.
Tax Planning for Aerospace Business Sales
Tax planning is often overlooked, and many business owners wrongly assume taxes on the sale of the business will be either ordinary income on an asset sale or capital gains on a stock sale.
The taxes on the sale of your business will depend on the structure of the transaction, the type of corporate entity your company is, your balance sheet and other factors. There is no simple answer to the question “how much will I owe in taxes on the sale of my business?” which is why it is important to talk to an expert in tax planning and strategies.
There are a number of tax strategies available to minimize and/or defer taxes on the sale of a business, some of which can defer as much as 90% of the taxes for several years. Tax strategies also offer ways to minimize taxes on the sale of your business.
Read our Selling Your Business FAqs for more information about selling a business
Sell Your Aerospace – Defense Manufacturing Business with the Right Broker and Right Strategy
If you are considering the sale of your aerospace manufacturing-distribution business contact us for a Free-Market Value Analysis or a copy of our free ebook “Developing an Exit Strategy”.
