Building Intrinsic Value: How Manufacturers Can Prepare for a Successful Exit

What separates a company that sells for $60 million from one that sells for $110 million? Often it comes down to one thing: preparation. Building intrinsic value is the key to positioning your manufacturing business for a successful sale. Whether that exit is next year or three decades away.

During a recent Moore on Manufacturing episode, M&A expert Dave Sheppard, Managing Director at Med World Advisors, joined Mike Sibley and Kevin Golden of the James Moore manufacturing team to discuss the buy and sell process for manufacturing companies. This conversation highlighted why focusing on intrinsic value today creates better outcomes for business owners tomorrow.

What Is Intrinsic Value and Why Does It Matter?

Intrinsic value goes beyond profit margins and financial statements. It encompasses everything that makes your business attractive to buyers, lenders and future employees.

“A company that thinks about intrinsic value—what they’re really thinking about every day is their stakeholders,” Sheppard explained. “It’s the employees, it’s the vendors, and it’s the customers and anybody involved in the ecosystem of that company.”

When you create value for every stakeholder in your business ecosystem, you establish conditions that generate returns today while positioning your company for future opportunities. Need a credit line? Bankers will perceive greater value. Want to land a larger customer? They often audit potential suppliers and make decisions based on operational readiness.

“People are always attracted to quality companies,” Sheppard noted. “If you’re doing things the right way, they’re always going to have an interest.”

The Difference Between Ready to Sell and Need to Sell

One of the most important distinctions Sheppard made during the discussion centers on timing and preparation.

“The best time to really sell is not when you need to sell. It’s when you’re ready to sell,” he said. “If you got the time to think about it and be prepared and do it right, you’ll have a much better outcome.”

Sheppard shared a compelling example of a business owner who had built his company over 25 years. At 78 years old, with family encouraging him to slow down, he had the luxury of time. Rather than rushing to market, he worked with advisors to assess his company’s strengths and weaknesses. By the time he was truly ready to sell, “he ended up getting an outcome that wildly exceeded his family’s expectations.”

The difference between preparation and desperation shows up in the numbers. According to Sheppard, even in challenging markets, “a good company can get twice the multiple because when you see these industry averages, you have to remember those are just the averages. If you’re a good company, you’re probably going to get more than the average.”

Common Misconceptions About Readiness

Many business owners believe a single profitable year signals readiness to sell. Sheppard pushed back on this assumption.

“Probably the strongest misconception is somebody says, ‘Hey, I really had a good profit last year, so I should be ready to sell,'” he explained. “You could have a good profit and a really crappy cash flow. You can have a good profit and not have a really good EBITDA.”

Customer concentration presents another hidden obstacle. Sheppard described working with a company that had strong EBITDA but such high customer concentration that “there was no way that he was ever going to get above average multiple. He was actually lucky to get an offer.”

Mike Sibley reinforced this point: “If you’re all of a sudden starting to get back to maybe normal, maybe you had one good year, you had one customer, had one big contract, but now you’re going back to more your normal range, you’re going to lose the value.”

Why Running a Process Matters

Business owners sometimes receive unsolicited offers from competitors or private equity firms and assume that’s their best path forward. Sheppard’s experience suggests otherwise.

He shared an example where a seller handed him a business card from a private equity firm that had pursued him for 20 years. “He said, ‘Hey Dave, these guys are going to buy us. I just know it.'” But when Sheppard ran a full process, the range of offers spanned from $60 million to over $110 million. That longtime suitor never offered more than $75 million.

“How do you as a seller who doesn’t run a process know, are you getting the $30 million offer or the $70 million offer?” Sheppard asked. “You really need to have somebody by your side helping you make sure you understand that you’re not leaving anything behind.”

Current Market Conditions and What They Mean

Despite economic uncertainty surrounding tariffs and global trade, Sheppard sees continued buyer interest.

“The dry powder everybody’s talked about, it’s still there,” he said. “People may not be throwing offers on the table this particular quarter, but as far as companies reaching out to us asking if we have a client they could buy, that activity is as strong as it ever can be.”

The challenge isn’t buyer appetite, it’s uncertainty. Financial buyers can handle good news and even bad news because they can factor it into their models. What stalls deals is not knowing the rules of the game.

Set Yourself Up for Success

Sheppard’s final advice centered on enjoying the work while building something valuable.

“Feel good about what you’re doing, the business that you’re in,” he said. “Manufacturing is tough. You get hit by COVID, supply chain things, tariffs, margin hits. If there’s certain parts of the business that you don’t enjoy as much, get good people to manage those parts for you.”

By assembling the right team and focusing on intrinsic value across every functional area, manufacturers can position themselves to sell when they choose, not when circumstances force their hand.

Want to hear more insights from Dave Sheppard on M&A strategy and exit planning? Watch the full Moore on Manufacturing episode for additional expert advice on preparing your manufacturing business for a successful sale.