Steel Fabrication and Stress Relief Business

Case Study

Successful Sale of a Steel Fabrication and Stress Relief Business

Background

Summit Capital Advisors successfully facilitated the sale of a well-established steel fabrication business located near Youngstown, Ohio. This company, specializing in rolling, forming, bending, and welding steel plate, had been operational for over 70 years, providing services to industries requiring high-quality steel fabrication. The firm’s services included MIG, TIG, Sub Arc, and traditional Stick welding, along with stress relief and annealing capabilities.

The business had earned a stellar reputation in its niche market, particularly for large-scale projects such as aggregate dryers, ductwork assemblies, and various structural steel projects. Despite some recent underperformance due to the owner’s health issues, the company’s strong reputation and profitability potential made it an attractive opportunity for a buyer.

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Transaction Overview

The steel fabrication business was listed for $765,000, with gross revenue of $1,120,595 and cash flow (Seller’s Discretionary Earnings, SDE) of $168,556. Despite the temporary downturn in revenue due to the owner’s health issues, the business had strong financials in the years prior, including 2017 revenue of $1,712,526 and an SDE of $375,404. The 2020 projected SDE, based on early financials, showed significant improvement, with SDE of $508,174, marking a margin of over 30%.

The assets included $350,000 worth of furniture, fixtures, and equipment (FF&E), such as welding machines, cranes, annealing furnaces, and a range of other fabrication tools. Additionally, inventory valued at $150,000, including materials and work in process, was included in the asking price.

The real estate, which consisted of two buildings on over 9 acres of land, was offered separately at a price of $350,000. The main building, a 14,680-square-foot manufacturing and fabrication shop, was well-equipped with overhead cranes and large doors for easy material handling. The secondary building housed office and engineering space.

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Challenges

The primary challenge faced during the sale was the impact of the owner’s health issues on the business’s recent performance. The owner, who had been with the company for over 16 years before purchasing it in 2009, was forced to step back from day-to-day operations in 2018 and 2019. This resulted in a dip in revenue and cash flow during those years. However, the business showed clear signs of recovery in 2020, with strong projected revenue and earnings. The company had a loyal customer base, but the buyer would need to restore operational efficiencies and capitalize on the available growth potential.

Another challenge was the decision regarding the real estate. While the business operated from a 15,000-square-foot facility, the owner did not include the property in the asking price, instead offering it separately for $350,000. This required the buyer to decide whether to continue leasing the facility or purchase the property for long-term operational stability.

Approach and Execution

Summit Capital Advisors marketed the steel fabrication business to strategic buyers and investors within the industrial and manufacturing sectors. The focus was on the business’s long history, established client relationships, and strong potential for recovery and growth. Marketing materials highlighted the firm’s specialized welding and fabrication capabilities, as well as the opportunity for the buyer to leverage the existing infrastructure for increased efficiency and production.

The marketing efforts emphasized the business’s ability to quickly regain its previous performance levels once an active owner took the reins. The opportunity to operate on a second shift and expand marketing efforts were key growth opportunities, along with the potential for increasing profitability through more active sales initiatives.

The firm also presented significant growth potential by hiring additional skilled workers and replacing the aging foreman in the next 2-3 years, which could improve productivity and employee morale. The transition plan was straightforward, with the seller offering four weeks of training to ensure a smooth handover.

Results

The steel fabrication business was successfully sold to a strategic buyer, who was already operating in the manufacturing sector and recognized the opportunity to expand their portfolio with a profitable, long-established company. The buyer appreciated the firm’s specialized capabilities and loyal customer base, which provided a solid foundation for further growth.

The transaction included the business’s assets, FF&E, and inventory. However, the buyer chose not to purchase the real estate at this time, opting instead for the option to lease the property. This decision allowed the buyer to assess the business’s potential before committing to long-term real estate investment.

The transition process was smooth, with the seller providing the agreed-upon training and support. The new owner was able to quickly re-establish operational efficiencies, and the company’s performance began to recover as expected, with projected revenue growth following the completion of the sale.

Key Takeaways
  • Resilient Client Base and Reputation: The business’s long-standing customer relationships and solid reputation in the steel fabrication industry made it a compelling acquisition for strategic buyers.
  • Growth Potential: Despite recent underperformance, the business had significant growth potential, particularly through expanding marketing efforts, increasing operational capacity with a second shift, and improving shop management.
  • Strategic Acquisition: For buyers looking to enter or expand in the steel fabrication market, this business presented an excellent opportunity to acquire a niche, skilled operation with a well-established track record.
  • Smooth Transition and Support: The seller’s commitment to providing training and ensuring a smooth transition helped facilitate a successful handover and contributed to the buyer’s early success.
Conclusion

Summit Capital Advisors successfully facilitated the sale of this steel fabrication business by emphasizing its strengths, including its established customer base, specialized capabilities, and growth potential. The sale highlights the importance of identifying businesses with strong underlying value, even in the face of temporary challenges. The new owner has the opportunity to expand the business, capitalize on its existing assets, and continue its legacy of providing high-quality steel fabrication services to a loyal client base.

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