Great track, not mentioning other scales wonderful products.
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The sad part is there is not enough volume to cover the cost of the tooling and good will and still make a decent return on investment. Just ask the purchasers of CLW and All Nation. The right way is the Right-O-Way solution - find a good guy and have him or her carry on . . .
Bob, unfortunately, you've summed it up precisely. Jay C is awesome.
Really, we just need 500, 000 people to contribute $1+. No problem. Start a Go Fund Me account.
Maybe 500k is too much?
Just because its stated it doesn't mean it's worth it. ME has a sizable HO business, perhaps that's the reasoning behind a half million? I mean seriously these days 500k doesn't get you what it used too. A quarter of the way to a Bugatti Chiron or a whole 21 Phantom Cabrio, maybe a fixer upper house in my zip code.
I know I know to the ME folks it's a pride thing and frankly to the right people it's priceless. I don't want to disrespect a great company or product. It's just too darn bad the market anymore is so blah. Saddens me.
Jay C is awesome I wish these ME folks would donate the tooling for the flex track to Jay or a willing body and let the good times roll.
In all eventuality the good folks at Walthers will aquire it and kill the o scale line.
They offer a first-rate line of On30 track (U.S. style) and I sure do hope that someone continues that product line. I may have to stock up on it as a Christmas gift to myself because I plan to add On30 to my 3-rail layout.
They did not state a price. They merely said there was a half mil in tooling.
Therein lies the problem - they want their investment, of course, but there is not a half million 2-railers in need of track. It may not even be economically feasible if the tooling were free.
@bob2 posted:They did not state a price. They merely said there was a half mil in tooling.
Therein lies the problem - they want their investment, of course, but there is not a half million 2-railers in need of track. It may not even be economically feasible if the tooling were free.
Yessiree..
Their product, and contribution to the hobby is priceless. I hope this works out. I'm only half joking about the Go Fund Me, really.
Found this on D&B for them.
Micro Engineering Inc is located in Byron Center, MI, United States and is part of the Medical Equipment and Supplies Manufacturing Industry. Micro Engineering Inc has 7 total employees across all of its locations and generates $292,530 in sales (USD). (Employees and Sales figures are modelled).
That and EBITDA is where the rubber meets the road for pricing. Tooling factors in but what age is it and where did the 500k valuation come from? Is that actual sunk cost or current replacement cost?
I would also want to know what's outsourced and where they get their raw materials, especially the nickel silver alloy.
Not expecting anyone here to actually answer these questions, just thinking out loud.
@TexasSP posted:Found this on D&B for them.
Micro Engineering Inc is located in Byron Center, MI, United States and is part of the Medical Equipment and Supplies Manufacturing Industry. Micro Engineering Inc has 7 total employees across all of its locations and generates $292,530 in sales (USD). (Employees and Sales figures are modelled).
Except it's Micro Engineering Company, not Micro Engineering Incorporated.
Micro Engineering Company is located in Fenton, Missouri.
Rusty
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Well, that's the hazards of reading and posting from a phone. I missed se details
This sort of thing is not like an ordinary business. These are boutique suppliers, typically doing their thing out of some love for a hobby, with intentions of supplying stuff to like-minded folk, not in making a living at it.
The question is not whether the tooling costs a half mil to duplicate - it is: if you have all the materials in hand and can push a button or do some simple assembly and produce a scale model for eight bucks, and can sell 50 of them a day for ten bucks each, is it worth it to even get out of bed?
Here is the correct information. I accidentally tapped the wrong one in the list when I searched.
Company Description: Micro Engineering Co Inc is located in Fenton, MO, United States and is part of the Other Miscellaneous Manufacturing Industry. Micro Engineering Co Inc has 10 total employees across all of its locations and generates $722,747 in sales (USD). (Sales figure is modelled).
@Erik C Lindgren posted:Jay C is awesome I wish these ME folks would donate the tooling for the flex track to Jay or a willing body and let the good times roll.
We currently have many small suppliers to our hobby, and always have.
At their beginning, when such suppliers start up, or at their end, when a buyer comes in and purchases the business to ensure it's viability as the previous owner exits, most of us are on pins and needles to see if there will be a successful outcome.
Regardless, the people who've, apparently quite successfully, run the business are expecting to get some sort of return for their hard work. This is the most fundamental concept of business in any form. For that reason donating anything is going to be off the table.
The only way most owners would donate their tooling is if they started the operation as a non-profit in the first place. If that's really what it was, then we wouldn't be have been calling it a business over all its years. Instead it would be thought of as a propped-up losing proposition.
Mike
Forget about the owner's cost of the existing equipment, inventory, furniture and fixtures. Forget about what people may think the goodwill is worth. And, gross sales dollars per year are irrelevant.
Start with computing the annual pre-tax net income of the business. (Many analysts use EBITDA instead of net accounting income under GAAP.)
Multiply that number by 3, and this creates a starting point for discussing what a fair asking price is.
Typically, the Owner will have to price the business based on a multiple of its annual profit or EBITDA, and agree to take the purchase price over time. Typically, the owner will also have to agree to be an active part time consultant for one to three years after the sale. Often much of the "goodwill" figure that the Owner wants is paid over time instead as "Consulting Fees", or allocated to a Covenant Not to Complete, so that the new owner can tax deduct it annually as a business expense.
Again, this is just a starting point, and any large liabilities that have to be assumed must also be assessed, to determine whether they are being amortized and serviced by cash flow. Are there any big loans that come due in the future? Those are often the major sticking point in the sale of a small business and kill the sale. (By way of example, who would want to pay $500,000 for a business if a loan in the principal amount of $250,000 comes due in three years?)
Also a serious consideration: Does the Owner own the manufacturing and other buildings or is he leasing them? What are the remaining terms of those leases, and what are the rent escalation clauses.
Given all of the above factors, which are absolutely standard in any business sale, I wonder how the current Owner priced his business?
Mannyrock
You still can't throw out asset value on something like this. Understanding what assets and debt comes along with this venture is critical. There is no single thing to look at here. Due diligence requires you to factor everything.
@Mannyrock posted:Forget about the owner's cost of the existing equipment, inventory, furniture and fixtures. Forget about what people may think the goodwill is worth. And, gross sales dollars per year are irrelevant.
Start with computing the annual pre-tax net income of the business. (Many analysts use EBITDA instead of net accounting income under GAAP.)
Multiply that number by 3, and this creates a starting point for discussing what a fair asking price is.
Typically, the Owner will have to price the business based on a multiple of its annual profit or EBITDA, and agree to take the purchase price over time. Typically, the owner will also have to agree to be an active part time consultant for one to three years after the sale. Often much of the "goodwill" figure that the Owner wants is paid over time instead as "Consulting Fees", or allocated to a Covenant Not to Complete, so that the new owner can tax deduct it annually as a business expense.
Again, this is just a starting point, and any large liabilities that have to be assumed must also be assessed, to determine whether they are being amortized and serviced by cash flow. Are there any big loans that come due in the future? Those are often the major sticking point in the sale of a small business and kill the sale. (By way of example, who would want to pay $500,000 for a business if a loan in the principal amount of $250,000 comes due in three years?)
Also a serious consideration: Does the Owner own the manufacturing and other buildings or is he leasing them? What are the remaining terms of those leases, and what are the rent escalation clauses.
Given all of the above factors, which are absolutely standard in any business sale, I wonder how the current Owner priced his business?
Mannyrock
Precisely. Very well said.
Mike
@TexasSP posted:Here is the correct information. I accidentally tapped the wrong one in the list when I searched.
Company Description: Micro Engineering Co Inc is located in Fenton, MO, United States and is part of the Other Miscellaneous Manufacturing Industry. Micro Engineering Co Inc has 10 total employees across all of its locations and generates $722,747 in sales (USD). (Sales figure is modelled).
Maybe I missed something when reading this thread. As a former business owner, I have to ask, what is the profit (sales - costs of doing business)? A company can have $3 millioin dollars in sales but still be in the red.
Anthony
Not sure. Probably have to get in direct contact and have some sort of NDA first. This is why I mentioned the EBITDA point in my first post.
Texas, you are correct.
As to assets themselves, though, used asset are generally not taken into account in computing prices of ongoing businesses. The businesses are not priced based on multiples of book value (i.e. assets minus liabilities), they are priced on what EBITDA is being generated.
Now, if they are just going to sell the assets, then yes, one would expect to pay the fair market value of the assets, minus any remaining liabilities attached to those assets (such as remaining purchase price liens.)
In several instances, though, where a major company wants to buy out a competitor just to get its foot in the door in a certain geographic region, including the business location and most of the experienced employees, I have structure sales for the Buyer where the purchase price was just the fair market value of the of the equipment, inventory and fixtures (minus the amount of any liens), plus assuming the lease, plus a "good-bye kiss" to the owner in the form of a cash payment for the tradename, goodwill and customer list, plus deferred payments for a covenant not to compete and a consulting agreement. In these instances, the buyer does not assume the liability to pay any bank loans or assume any other liabilities or indebtedness. The owner has to pay these off out of the good-bye kiss funds.
In the current situation, we don't really know whether the owner is trying to sell the stock of his company (which includes absolutely all assets and liabilities of the business, known and unknown) for $500,000, or whether he is trying to just sell the hard assets and get a good-bye kiss on top of that. So, we are all really just having fun by speculating.
Owners always want to sell their stock, so that they can get rid of all of the assets and liabilities, and get capital gains tax on the profit they make
Buyers generally want to buy assets, so that they can pick and choose the assets and certain liabilities, but then the Owner is stuck with more money being allocated to the Covenant Not to Complete and the Consulting Agreement, which he must then pay ordinary income tax rates on.
So, those are the pricing dynamics.
In my 30 years in M&A, I structured and closed over 100 business sales, from 1 million to 250 million. My head hurts just thinking about it. :-O Glad I got out.
Mannyrock
Yes I agree Manny. I grew up around M&A with my dad who started his career doing M&A for Arthur Young and has bought and sold at least a dozen companies on his own.
My guess is even at 500k estimated value (whatever that's based on?) that a lot of it wouldn't even have real value or wanted by a potential buyer. I think the MTH sale has proven how difficult this is being pieces out like it has.
I'm just not sure what part of Micro's would be the most desirable and profitable.
If getting into the track side of it I would be very concerned about their sourcing for the rail.
Excellent points Texas.
Micro has a very small niche business, and their customer base in O gauge is probably shrinking each and every year.
Sometimes we see the buyer just keep making the one or two profitable products, and discontinue all of the rest.
In a sense, O gauge manufacturers are in somewhat of the same position as the harness and buggy whip companies were, after Ford invented the Model-T. Sad.
Mannyrock
Don't forget, Micro Engineering also makes HO and N track products. That's where the company's value is.
Rusty
They already make P48 flex track track for Jay.
Unless most of the ten employees are part time $722K in sales looks pretty low for a manufacturing company.
My rule of thumb for manufacturing is wholesale sales of $120K-180K per employee for a going concern with $200K+ per year indicating good profits. I imagine the above sales figures are estimated and might be a bit low with Micro Engineering's breadth of catalog.
Before you M&A guys jump on this it is just my quick "rule of thumb"
@A. Wells posted:Maybe I missed something when reading this thread. As a former business owner, I have to ask, what is the profit (sales - costs of doing business)? A company can have $3 millioin dollars in sales but still be in the red.
Anthony
Reminds me of a story from years ago when a Vice-President of the then-mighty Pennsylvania Railroad was being interviewed by a reporter who asked, "Sir, isn't it true that your company losses money on every boxcar it moves?" The executive replied. "Yes, but we make it up in volume!"
