Deal Flow: The Sky’s the Limit

A Florida-Based Kit Aircraft Manufacturing Business with Strong Margins, Proprietary Assets, and a Two-Year Backlog

This week’s Deal Flow features a kit aircraft manufacturing business that looks like a unique and potentially lucrative opportunity in a niche market. Strong profit margins, extensive FF&E, proprietary assets, and the two-year backlog are significant strengths. The reason for the sale, owner retirement, is the perennial favorite of us acquisition entrepreneurs everywhere. Continued success will require the buyer to capitalize on growth opportunities, manage operational risks, and sustain the company’s market position.

Business Overview

Business Type: Kit Aircraft Manufacturing Business
Location: Indian River County, FL
Asking Price: $6,914,228
Cash Flow: $642,538
Gross Revenue: $3,054,683
FF&E: $3,078,000 (included in asking price)
Inventory: $100,000 (included in asking price)
Established: 1992

Business Description

This family-run business specializes in manufacturing kits for experimental class aircraft builders, particularly canard-style aircraft. Established in 1992, the company has over 20 years of experience and operates multiple facilities at a prominent airport. These facilities include a machine shop, carbon fiber composites shop, welding shop, and other necessary manufacturing spaces. The business has developed proprietary molds for composite builds, valued at over $1 million, and has a loyal customer base with high builder completion rates.

The company is known for its innovation in aircraft design, high-quality control, and safety record. Their marketing efforts include participation in major aviation shows, which help secure new orders. The business has a two-year backlog, indicating strong demand. They also offer a builder support program, generating additional revenue by allowing customers to build their aircraft at the company’s facilities with access to tools and qualified staff.

Seller financing is available, and the business is SBA pre-approved for up to $5 million, with the owner willing to finance the balance.

Financial Analysis

• Asking Price to Cash Flow Ratio: The asking price is approximately 10.76 times the cash flow ($6,914,228 / $642,538). This is a high multiple compared to typical manufacturing businesses, which usually sell for 3–5 times cash flow.
• Gross Revenue: With gross revenue of $3,054,683 and cash flow of $642,538, the profit margin is approximately 21%. This is a solid margin, suggesting effective cost control and strong operational efficiency.
• FF&E: The business includes $3,078,000 in FF&E, which is substantial and adds significant value to the asking price. The proprietary molds alone are valued at over $1 million, which is a critical asset for maintaining the business’s competitive edge.

Operational Analysis

• Facilities and Equipment: The business operates multiple facilities at a prominent airport. The extensive list of manufacturing equipment, including the proprietary molds, positions the company well for continued production and innovation.
• Employee Structure: With 25 employees, the business has a moderately large workforce. The willingness of key family members (the son and grandson) to stay with the business is a positive factor, as it ensures continuity and the retention of institutional knowledge.
• Backlog and Demand: The two-year backlog is a strong indicator of demand and provides a degree of financial security for the near future. This also suggests potential for increasing production capacity to meet demand and reduce lead times.

Opportunities and Risks

Opportunities:

• Expansion and Growth: Investing in updated tooling and equipment could increase production efficiency and reduce manufacturing time, allowing the business to take on more orders and potentially reduce the backlog.
• Product Innovation: The business has a history of innovation, and continued investment in R&D could lead to new products or improvements to existing designs, further strengthening their market position.
• Geographic and Market Expansion: The company could explore new markets, both domestically and internationally, to expand its customer base.

Risks:

• High Valuation Multiple: The high multiple of 10.76 times cash flow is a significant risk, as it means the buyer is paying a premium. The buyer needs to ensure that the business can sustain its cash flow and growth to justify this price.
• Dependence on Key Personnel: The business is family-run, and while key family members are willing to stay, any changes in their commitment or unforeseen circumstances could impact operations.
• Industry-Specific Risks: The experimental aircraft industry is niche, and any regulatory changes, economic downturns, or shifts in consumer preferences could affect demand.

Valuation Considerations

The asking price is high relative to the cash flow, which suggests that the valuation heavily factors in the unique niche, proprietary assets, and backlog. It’s crucial to:

• Conduct Thorough Due Diligence: Verify the financials, particularly the sustainability of the backlog and the consistency of cash flow. Assess the value and condition of the FF&E and proprietary molds.
• Evaluate Growth Potential: Consider the potential for expanding production capacity, entering new markets, and continuing product innovation.
• Negotiate Terms: Given the high asking price, negotiation on terms, including the extent of seller financing and transition support, will be key to mitigating risks.

What do you think? Check it out and let me know!

About: Silverwave Deal Flow combs through and analyzes thousands of businesses available for sale that may be of interest to entrepreneurs looking to acquire an existing business. We are not affiliated with the business listed for sale unless otherwise disclosed.