Monday, August 21, 2017

This Could be the Year to Sell Your Modular Home Business

Most modular home builders have more options than they realize when it comes time to sell or retire. With business being very good this year for many of you that means perhaps now is the time to do it.

Taking the wrong approach however could have serious financial consequences for you.

An outright sale is probably the simplest way to exit a business. This approach makes sense when an owner’s family members have no interest in taking it over or when the owner can’t figure out how to take the company to the next level or meet challenges that may have arisen.

For many modular and site builders the path to growing bigger may be blocked by the lack of a skilled talent pool in your area or the need to begin delegating responsibilities to others and you’re just not comfortable with that.  

There are two ways to cash out: You can sell the company’s assets outright, or you can sell his stock in the company (or units if it is a limited-liability company). Stock sales tend to benefit the seller, while asset sales are more beneficial to the buyer.

Asset buyers are getting your company’s physical equipment, facilities and customer with signed contracts, as well as intangibles such as trademarks and goodwill, and as a result are generally protected against prior claims against the business.

For example,you would most likely be responsible if an environmental claim were made against your former property or if an employee hired or a past customer on your watch filed some sort of lawsuit.

Stock purchasers, in contrast, are buying your company itself and thus are exposed to all of its potential problems. This is why most sales of small, closely-held businesses are structured as asset sales.

Selling the business to your managers is also a popular option. You might go this route when your company has a trusted, entrepreneurial management team that wants to carry on the business.

The biggest advantage of this strategy is that you don’t have to spend time trying to charm a buyer. The trade-off for an easier sale is that the price may be lower than what an outsider would pay.

Some entrepreneurs don’t like having to let a third party determine the value of the shares, believing that it might mean accepting a lower price than they would get on the open market. Also, the company has to have cash on hand to buy back employee shares when workers leave. This can divert cash from other business uses and can be a real drain if several employees leave in close succession.

While there are many options for modular home builders who want to cash out, the best way depends on the nature and health of the business and your intentions to stay with the company or move on. Understanding all of the options, and getting good advice from experienced business professionals, can make it easier to pursue the route that’s best for all involved.

1 comment:

Mark Sage said...

Coach: Excellent article! Having sold seven Manufactured Structures (Modular & HUD) and RV manufacturing companies for clients since 2006, we recommend a competitive bidding approach to maximize sale proceeds. Forget business appraisals and limiting yourself to talking to only one acquirer. You can surpass average deal multiples paid by using good old fashioned competitive bidding between multiple acquirers. Also, strategies like transferring the real estate into the owners name (if it's company owned) prior to closing helps increase the ultimate sale proceeds. Otherwise, if the real estate is owned by the company and is on the balance sheet, it can be acquired by purchasing the stock, giving no real value to the asset if the buyer is using a multiple of earnings valuation. Mark Sage, Wyndham Capital, LLC.