CNC machining businesses tend to come with real assets, skilled people and a customer list that took years to build. That combination is hard to replicate and is usually why buyers want one.
The risks are concentration and succession. A shop with two big customers and one irreplaceable machinist is a different proposition to one with neither problem.
Here is how to judge which you are looking at.
Pros and cons of buying a CNC machining business
First things first, let’s shine a spotlight on both the positive and negative aspects of acquiring within this sector.
Advantages
When it comes to the benefits of acquiring a CNC business, there are several significant reasons to invest.
For starters, CNC machines are invaluable when it comes to improving manufacturing accuracy and efficiency. As a result, not only do they streamline production processes, but they also dramatically reduce the possibility of error, resulting in significant cost savings and the production of incredibly complex and effective parts.
Unsurprisingly, this capability is much in demand and has a wide array of applications, so acquiring a business with this specialty should help to cement your place in the market and result in a growing customer base (and profit margins).
Disadvantages
Any acquisition carries with it an element of risk, particularly if you are entering a market segment that you don’t have a lot of experience in. It also goes without saying that purchasing a CNC machining business will be costly, with the exact sum depending on the specific company you’re interested in.
Not only that, but you will also have to think about the long-term costs associated with this kind of business, which are substantial, as you will have to maintain the machines and their software to ensure their ongoing efficacy. You will also have to pay the skilled technicians who operate them – and this brings us to another potential stumbling block: finding enough technicians to keep the business going.
Obviously, since you are buying an existing company, there should already be a team to hand, but some of them may decide to leave following the sale. You will then have to hire or possibly train new staff, which could be costly in terms of both time and money.
Special considerations
Because CNC machines are so specialised, it’s important to conduct thorough market research before acquiring, to ensure you understand what it takes to run a successful business in this sphere.
For example, perhaps the machining target you’re considering specialises in producing medical products. Doing your due diligence and researching the regulations governing the manufacture of these products will be crucial, as you will need to know exactly what kind of items you’re producing and what constitutes a safe, well-made product.
You should also familiarise yourself with the company’s existing client roster. Some clients may choose to take their business elsewhere once they know the business is changing hands so you will then have to source new business, which could be difficult, especially to begin with.
These considerations are important to bear in mind as you approach your CNC machining acquisition.
How to acquire a CNC machining business
Now you know more about this innovative and growing market, you may be eager to go ahead and acquire a business within the CNC machining sector. If so, let’s take a closer look at the actual M&A process and what you can expect.
1. Choosing your acquisition targets
The first step, of course, is to select your prime CNC targets for purchase, once you have done your research and decided which segment of the market you would prefer to invest in – for instance, aerospace, automotive, healthcare, etc.
Because there are so many different businesses to consider, it may be worth your while to hire a business broker to help you find and verify potential machining targets. They have an extensive network of contacts spanning various sectors, so they are well-placed to help you find the right sort of companies.
Once you have narrowed down your preferred candidates you can ask for valuations, so you start off with a good idea of their market value. Again, a business broker can assist you by conducting the valuation themselves.
2. Negotiating an initial agreement
When you have chosen a machining business – or businesses – you would like to purchase, it’s time to proceed to the negotiation stage. This allows you and the seller to create an initial heads of terms agreement, settling key terms for the proposed deal.
Although not legally binding in most cases, a heads of terms agreement is very useful for streamlining the acquisition process and ensuring both you and the seller are on the same page.
3. Due diligence
The next step is due diligence. During this part of the acquisition process, you’ll be granted access to your target’s documentation and afforded an in-depth look at how their operations.
This part of the acquisition is arguably most crucial as it should hopefully provide you with all the information you need to help you make an informed decision about purchasing your CNC target.
Don’t be tempted to rush this stage, as if you do, you run the risk of missing something that could prove very influential post-sale.
4. Closing the deal
If you complete your due diligence and you’re satisfied with what you’ve seen, then the obvious next step is to complete the deal and purchase your new CNC business!
Your legal experts can get to work, drawing up the final contracts, and you can prepare to integrate your new business and smooth the way for your new employees, suppliers, and customers.
Why hire a business broker
As we’ve mentioned, hiring a business broker can be very beneficial when it comes to buying a CNC machining company. They can put you in touch with a range of potential acquisition targets that meet your ideal ‘profile’.
Not only that, but they can orchestrate the entire deal on your behalf. This includes mediating with sellers, arranging valuations, assisting with negotiations and due diligence, and guiding you toward successful deal completion.
Having these comprehensive services available can both smooth and speed up the acquisition process and save you significant amounts of time and energy, putting you firmly on the path to becoming the proud new owner of a CNC machining business.
Precision meets value at Harris Acquire
Here at Harris Acquire, we’re experts in pairing buyers and sellers of businesses spanning a wide range of industries – including manufacturing. So, if you’re in need of expert assistance to help you find the best CNC machining deals and secure your next acquisition, our friendly and experienced team is perfectly positioned to help you succeed.
Providing comprehensive services such as our Acquisition Finder pilot, which includes a 30-day money-back guarantee, we can guide you through the M&A process with ease, saving you time and hassle at every turn.
To find out more about our services and how we can help you find the ideal CNC machining targets, don’t hesitate to contact us on 01926 757100 or email Hello@harrisacquire.com and we’ll be in touch directly.
If you are looking to acquire a business like this, our acquisition search service finds and approaches targets that fit your criteria, usually within 30 days.
