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Buying a manufacturer; tips from a serial buyer

Manufacturing production line conveyor belt

"A generous gross margin, low inventory, low overhead expenses - rent, supervison, etc - and a diverse and loyal customer base" - what to look out for in a manufacturer for sale, according to a manufacturing entrepreneur. spoke to the owner of a manufacturing company serving upholstery, home decorating and hospitality industries about the state of the sector in the US and globally, and its prospects for the future.

Paul Terlizzi, who bought American Down & Feather Inc in December last year, believes it's a judicious time to make acquisitions in the sector. "It's a pretty good time to get into manufacturing again," he says. "We import some supplies and finished products from China, and honestly, right now our cost to manufacture most things is less than the cost to import them."

Unique product

Asked what makes a good acquisition, Terlizzi replies: "The product is unique - ie, not a commodity - the turnaround time is quick - saving the customer inventory costs - and the customer is nearby, thus saving them transportation costs."

A serial business buyer, Terlizzi made six acquisitions when running his family business, including a chain of retailers, two manufacturers, three distributors and an educational company. He also created three joint ventures over a decade.

What has he learned from his wealth of experiences buying businesses? "Not to become emotional about the business or get caught up in the energy of a deal.  I've trained myself to know when to walk away if the sellers or advisors begin to increase or change their expectations."

Mistakes were inevitable having concluded so many deals. "I thought one of the manufacturing businesses did not really have an adequate product platform to build upon; it simply chased fad after fad.  

"I got caught up in the latest fad and paid too high a price for a business that didn't survive even five years after I bought it," he confesses.

Paul is therefore well placed to advise the following to prospective buyers: "Get help evaluating the business financially and operationally from well experienced public accountants and business lawyers. In the US we have SCORE, a non-profit arm of the SBA.

"The service core of retired executives is a group of business people from all sorts of businesses that will help you evaluate any type of business and the service is free."

He offers this final advice to buyers whose ambitions outstrip their experience and expertise: "Don't attempt to turn a business around unless you've done it before and are supremely confident about your ability to do it.

"Otherwise pay a little more than you think is right for the positive cash flow and really enjoy the business you buy."

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