How to Maximize Value in a Manufacturing Business Exit

Right Street Advisors
Nov 17
5 min read

Updated: Nov 17

Selling a manufacturing company can be a life changing event. Whether you operate a CNC machine shop, aerospace component producer, or contract manufacturer, your years of hard work deserve the highest possible valuation.

Yet in today’s M&A environment, buyers are selective and several factors impact how valuations are assessed. Buyers will pay premiums for clean financials, process discipline, and operational visibility, and on the contrary, they will discount heavily for disorganization, tight margins or concentration risk.

At Right Street Advisors, we’ve helped owners across the manufacturing industry prepare for premium-multiple exits to maximize value . Here’s a step-by-step guide to maximizing value in a manufacturing sale.

1. Start With the Right Preparation Timeline

The single most common mistake sellers make is waiting too long to prepare. Serious buyers expect at least two years of clean financials, accurate job costing, and proper systems. By implementing the right systems, a seller can directly maximize their value.

Start 12–24 months before going to market:

Normalize owner expenses and non-recurring items
Document customer contracts, backlog, and recurring revenue sources.
Resolve compliance, legal, or financial issues.
Invest in leadership development to reduce owner dependency.
- TAKE A LONG VACATION – leave your business for more than a month and allow the staff to manage the day to day.

Early preparation doesn’t just avoid red flags, it allows you to demonstrate stability and scalability, two attributes’ buyers will pay a premium for.

2. Understand What Actually Drives Valuation

In manufacturing M&A, buyers don’t pay for “potential.” They pay for verifiable performance and predictable cash flow.

Top valuation drivers that directly maximize value include:

Value Driver	Why It Matters
Consistent EBITDA margins	Predictability = reduced risk
Diversified customer base	Less exposure to any single client
Proprietary processes or tooling	Creates defensible competitive edge
Certifications (AS9100, ISO 9001, NADCAP)	Increases trust with OEMs and Tier-1 buyers
Documented SOPs and workflow systems	Enables smooth integration and scalability

3. Normalize and Defend Adjusted EBITDA

Buyers don’t use net income as the foundation for valuation. They start with Adjusted EBITDA, which adds back non-operating and discretionary expenses. This can directly maximize value as your adjusted EBITDA is just as important as the multiple that goes with it!

Common add-backs include:

Owner compensation above market rate
Family member payroll not tied to production
One-time legal or consulting fees
Personal vehicle, travel, or entertainment expenses
Non-recurring costs or tests

A third-party Quality of Earnings (QoE) report can validate these adjustments. It’s often worth the cost. A credible QoE can increase enterprise value by millions depending on the size of the business and reduce post-LOI re-trades.

At Right Street Advisors, we partner with top-tier accounting partners for QofE services to ensure your normalized EBITDA is defensible and well-documented before launching a process.

4. Clean and Strengthen Financial Reporting

Nothing kills buyer confidence faster than disorganized or delayed financials.

To present a company that commands confidence:

Know the difference between accrual and cash accounting, most buyers like to see accruals.
Ensure that your CPA is doing your bookkeeping if you don’t have someone in house or hire an expert to help.
- Ensure your financials are GAAP-consistent
Reconcile inventory, work in progress, accounts receivables, accounts payables, and fixed assets accurately.
Segment revenue by customer, product line, and geography.
Prepare trailing-twelve-month (TTM) statements and monthly KPIs.

If you rely heavily on manual spreadsheets, consider upgrading to an ERP/MRP system. The investment will often pay for itself through higher valuation multiples.

5. Demonstrate Backlog and Contract Visibility

Buyers value predictable revenue streams and visibility into future performance.

Multi-year blanket purchase orders or master supply agreements.
Long-term contracts with Tier-1 customers or government entities.
Historical customer retention and reorder rates.
Demand pipelines tied to specific end-markets (defense, medical, aerospace).

Even small shops can improve perceived stability by tracking and presenting rolling 12-month backlog and quote-to-win ratios. This data proves your revenue base is sustainable, not cyclical or project by project based.

6. Diversify Customers and End-Markets

Customer concentration in manufacturing remains one of the biggest hurdles leading to valuation discounts and limiting a manufacturers ability to maximize value during their exit.

If one or two clients make up more than 40% of revenue, a buyer will perceive elevated risk and in turn mitigates this risk through discounts. Diversifying before a sale, even modestly, can dramatically increase your multiple. If you can provide a tried and tested solution for diversification this can help alleviate concerns.

Tactics include:

Expanding into complementary industries (e.g., from aerospace to transportation or drones).
Adding new OEMs or regional customers through trade shows and distributors.
Developing private-label or proprietary product lines.

Buyers want resilient revenue, not dependence on one customer’s business cycle.

7. Address Operational Bottlenecks and Deferred Capital Improvements

Before going to market, walk through your facility as if you were a buyer. Would you be impressed by the equipment, organization, layout, and efficiencies?

Proactive improvements that enhance value:

Update high-use machinery to reduce downtime and scrap rates.
Implement preventive maintenance logs and protocols.
Organize workstations and improve shop flow visibility.
Replace aging compressors, inspection tools, or forklifts that could raise diligence flags.

Buyers love clean, efficient shops that signal strong process discipline. These details justify premium multiples.

8. Build a Strong Middle Management Team

Owner dependency is one of the most common “deal killers” in lower middle-market manufacturing.

To reassure buyers:

Develop and retain key department heads.
Create clear roles for operations, sales/marketing, and finance.
Offer retention bonuses or roll-over equity for critical staff.

A management team that can run day-to-day operations without the owner increases both valuation and post-sale flexibility, which often allows for faster transitions and less owner operator dependencies.

9. Run a Structured, Competitive Sale Process

Even a perfectly prepared company can undersell itself without competition.

A skilled investment banker creates value through competitive tension by:

Confidentially marketing to multiple strategic and financial buyers.
Controlling the timeline and broad auction bidding process.
Managing NDAs, CIM distribution, and Q&A.
Negotiating LOI terms (price, rollover equity, working capital peg, earnouts).

Manufacturing owners who sell directly to a single buyer often leave 20% or more of enterprise value on the table. A professional sell-side process ensures buyers compete on your terms.

10. Focus on the Story Behind the Numbers

Financials tell part of the story, but the narrative drives emotional conviction and paints a picture of the future for any potential buyers.

This includes discussing:

How your company grew from startup to industry-trusted supplier.
Key differentiators and value proposition (quality, delivery times, customer service).
New market opportunities that a buyer can capitalize on.

Buyers invest in growth, not just stability. A clear, data-driven story backed by clean numbers makes your business memorable and defensible during diligence.

Ultimately, lower middle market manufacturing companies are in high demand especially those with technical capabilities, strong customer relationships, and disciplined financial management. But maximizing value doesn’t happen at closing, it happens in the 12–24 months leading up to the sale.

By focusing on financial clarity, customer diversification, and operational scalability, you’ll position your business as a true platform-quality acquisition and directly maximize value.

If you’re considering an exit, now is the time to prepare before a buyer approaches you on their terms.

Ready to Begin Planning Your Exit?

At Right Street Advisors, we specialize in sell-side advisory for precision and contract manufacturers. Our team helps owners prepare, position, and execute competitive sale processes that maximize value and protect confidentiality.

Selling a manufacturing company can be a life changing event. Whether you operate a CNC machine shop, aerospace component producer, or contract manufacturer, your years of hard work deserve the highest possible valuation.

At Right Street Advisors, we’ve helped owners across the manufacturing industry prepare for premium-multiple exits to maximize value . Here’s a step-by-step guide to maximizing value in a manufacturing sale.

1. Start With the Right Preparation Timeline

The single most common mistake sellers make is waiting too long to prepare. Serious buyers expect at least two years of clean financials, accurate job costing, and proper systems. By implementing the right systems, a seller can directly maximize their value.

Start 12–24 months before going to market:

Normalize owner expenses and non-recurring items

Document customer contracts, backlog, and recurring revenue sources.

Resolve compliance, legal, or financial issues.

Invest in leadership development to reduce owner dependency.

TAKE A LONG VACATION – leave your business for more than a month and allow the staff to manage the day to day.

Early preparation doesn’t just avoid red flags, it allows you to demonstrate stability and scalability, two attributes’ buyers will pay a premium for.

2. Understand What Actually Drives Valuation

In manufacturing M&A, buyers don’t pay for “potential.” They pay for verifiable performance and predictable cash flow.

Top valuation drivers that directly maximize value include:

Value Driver

Why It Matters

Consistent EBITDA margins

Predictability = reduced risk

Diversified customer base

Less exposure to any single client

Proprietary processes or tooling

Creates defensible competitive edge

Certifications (AS9100, ISO 9001, NADCAP)

Increases trust with OEMs and Tier-1 buyers

Documented SOPs and workflow systems

Enables smooth integration and scalability

3. Normalize and Defend Adjusted EBITDA

Buyers don’t use net income as the foundation for valuation. They start with Adjusted EBITDA, which adds back non-operating and discretionary expenses. This can directly maximize value as your adjusted EBITDA is just as important as the multiple that goes with it!

Common add-backs include:

Owner compensation above market rate

Family member payroll not tied to production

One-time legal or consulting fees

Personal vehicle, travel, or entertainment expenses

Non-recurring costs or tests

A third-party Quality of Earnings (QoE) report can validate these adjustments. It’s often worth the cost. A credible QoE can increase enterprise value by millions depending on the size of the business and reduce post-LOI re-trades.

At Right Street Advisors, we partner with top-tier accounting partners for QofE services to ensure your normalized EBITDA is defensible and well-documented before launching a process.

4. Clean and Strengthen Financial Reporting

Nothing kills buyer confidence faster than disorganized or delayed financials.

To present a company that commands confidence:

Know the difference between accrual and cash accounting, most buyers like to see accruals.

Ensure that your CPA is doing your bookkeeping if you don’t have someone in house or hire an expert to help.

Ensure your financials are GAAP-consistent

Reconcile inventory, work in progress, accounts receivables, accounts payables, and fixed assets accurately.

Segment revenue by customer, product line, and geography.

Prepare trailing-twelve-month (TTM) statements and monthly KPIs.

If you rely heavily on manual spreadsheets, consider upgrading to an ERP/MRP system. The investment will often pay for itself through higher valuation multiples.

5. Demonstrate Backlog and Contract Visibility

Buyers value predictable revenue streams and visibility into future performance.

Multi-year blanket purchase orders or master supply agreements.

Long-term contracts with Tier-1 customers or government entities.

Historical customer retention and reorder rates.

Demand pipelines tied to specific end-markets (defense, medical, aerospace).

Even small shops can improve perceived stability by tracking and presenting rolling 12-month backlog and quote-to-win ratios. This data proves your revenue base is sustainable, not cyclical or project by project based.

6. Diversify Customers and End-Markets

Customer concentration in manufacturing remains one of the biggest hurdles leading to valuation discounts and limiting a manufacturers ability to maximize value during their exit.

Tactics include:

Expanding into complementary industries (e.g., from aerospace to transportation or drones).

Adding new OEMs or regional customers through trade shows and distributors.

Developing private-label or proprietary product lines.

Buyers want resilient revenue, not dependence on one customer’s business cycle.

7. Address Operational Bottlenecks and Deferred Capital Improvements

Before going to market, walk through your facility as if you were a buyer. Would you be impressed by the equipment, organization, layout, and efficiencies?

Proactive improvements that enhance value:

Update high-use machinery to reduce downtime and scrap rates.

Implement preventive maintenance logs and protocols.

Organize workstations and improve shop flow visibility.

Replace aging compressors, inspection tools, or forklifts that could raise diligence flags.

Buyers love clean, efficient shops that signal strong process discipline. These details justify premium multiples.

8. Build a Strong Middle Management Team

Owner dependency is one of the most common “deal killers” in lower middle-market manufacturing.

To reassure buyers:

Develop and retain key department heads.

Create clear roles for operations, sales/marketing, and finance.

Offer retention bonuses or roll-over equity for critical staff.

A management team that can run day-to-day operations without the owner increases both valuation and post-sale flexibility, which often allows for faster transitions and less owner operator dependencies.

9. Run a Structured, Competitive Sale Process

Even a perfectly prepared company can undersell itself without competition.

A skilled investment banker creates value through competitive tension by:

Confidentially marketing to multiple strategic and financial buyers.

Controlling the timeline and broad auction bidding process.