Machining & Tooling Business Valuation Benchmarks

Business owners, prospective buyers, and industry investors rely on a diverse set of financial benchmarks to assess the value of a business. We have compiled data from current BizBuySell listings and sold businesses to provide insight into the business for sale market and important benchmarks for pricing and evaluating machining & tooling businesses relative to industry standards.

See also: Metal Product Manufacturer Business Valuation Benchmarks

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Highlights of Machining & Tooling Businesses Sold on BizBuySell

Machining and tooling businesses listed and sold on BizBuySell range from small local machine shops to larger, more specialized businesses and provide custom fabrication and manufacturing services for individual, industrial, and commercial clients. These businesses play a crucial role in the manufacturing industry, offering precision machining solutions that transform raw materials into finished products or components with exact specifications. These businesses typically offer CNC machining, tool and die making, prototype manufacturing, and custom fabrication.

Machining & Tooling Business Transaction Trends

Machine shops and tooling businesses listed and sold on BizBuySell saw values spike during the Covid-19 pandemic. The increase was likely tied to global supply chain issues that lead to increased demand for domestic manufacturing. Prices have since come down but remain well above pre-pandemic levels.

Machining & Tooling Business Valuation Multiples

Valuation, or pricing, multiples are financial tools that allow for comparisons between businesses that have different levels of sales and income. They represent the sales price of a business relative to its financial performance, and given enough individual business sales data, they represent what the market is willing to pay for a business given its revenue and earnings.

Valuation Trends

Business values and associated multiples fluctuate over time, influenced by a variety of macroeconomic factors such as interest rates, inflation, consumer spending, and overall economic growth. Valuation multiples of machine shops and tooling businesses are remarkably consistent compared to most other business sectors until 2024, when valuations increased sharply.

Earnings Multiples

Earnings multiples represent the value of a business relative to its owner’s discretionary earnings or "cash flow". Arguably the most important valuation metric - as seller's discretionary earnings will often dictate how much a buyer is able to borrow to finance the business acquisition - most valuations will hinge on the earnings multiple.

Revenue Multiples

Revenue multiples represent the value of a business relative to its overall annual sales or revenue. In conjunction with an earnings analysis, revenue multiples are commonly used to value a business based on its top line sales.

How to Interpret These Multiples

Recent Listings vs. Sold Businesses

We calculate and provide valuation multiples from two sources: Current and recent listings of machine shops and tooling businesses for sale, and our database of "comparable" businesses sold on BizBuySell. Multiples based on listing data are usually higher due to owners setting asking prices above what their businesses might typically sell for. This occurs either intentionally as a negotiation strategy, or incidentally due to business owners’ common tendency to overvalue their own businesses. When current listing multiples are lower, that signifies decreasing values or previously inflated values of sold businesses.

Multiples based on comparable businesses - "comps" in business broker parlance - are much more useful as they represent the prices at which businesses ultimately get sold. Business brokers and valuation professionals will always turn to local comps when pricing businesses for sale or evaluating businesses for acquisition. We provide both sets of data at the national level to offer general context.

Quartiles, Median, and Average

No two businesses are identical, and as such, valuation multiples exist in a range. We have carved out four common values within this range: Lower quartile represents the value under which the lowest 25% of valuation multiples fell. Upper quartile represents the value above which the highest 25% of multiples fell. Median is the middle of the range, and average is the mean of the set. Mean is almost always higher than the median, driven by a minority of high volume, high value businesses sold at multiples above the upper quartile.

Businesses with consistent financial performance, above average revenue and earnings, demonstrable growth potential, low owner involvement, unique competitive advantages, and a seller willing to finance will command a multiple at or above the upper quartile. Smaller businesses with thin profit margins, full-time owner involvement, and many direct competitors will trade at or below the lower quartile. Most businesses will fall somewhere in the middle.

Based on this data, half of machine shops and tooling businesses are valued and sold between 2.28 and 3.92 times their annual seller discretionary earnings, with 25% of exceptional, large businesses trading above this range, and 25% of smaller, less desirable businesses trading below.

Financial Benchmarks

To determine how a business compares in terms of revenue and earnings performance relative to industry peers, it’s necessary to have some insight into industry standards. "Benchmarking" describes the practice of comparing a business’s financial performance to typical industry standards to determine where a business falls relative to other businesses in the same industry. These benchmarks can help guide owners and investors towards appropriate valuation multiples from the range above.

To that end, we have aggregated machine shop business financial ranges useful for comparing an individual business to its peers sold and for sale.

Machining & Tooling Business Revenue and Earnings Trends

Machine shops sold have reported increasing revenues since the pandemic made their services more valuable. While the peak was in 2020, sales and owner discretionary earnings remained elevated from pre-pandemic levels until 2024 when the median revenue and earnings fell 25% and 16%, respectively.

Earnings Ranges

Discretionary earnings (used interchangeably with the terms "cash flow" and seller's discretionary earnings or SDE) is often the crux of business valuations, so it is important to benchmark it relative to similar businesses traded on the market. Below you will find reported owner's discretionary earnings ranges of machining and tooling businesses sold over the past five years, as well as from recent machine shop business for sale listings.

Revenue Ranges

Sales volume plays a large role in business valuation, as it measures the size of the potential income opportunity for new ownership. It's not uncommon for buyers to select an earnings multiple range based on overall revenue. The table below includes revenue ranges of machining and tooling businesses sold over the past five years and recent businesses listed for sale.

How Revenue and Earnings Level Affects Business Values

Clearly higher levels of earnings lead to higher valuations, even given the same multiple. However, valuation multiples also tend to rise with business sales volume. Machine shop and tooling businesses that generate higher sales (and maintain reasonable profit margins) tend to sell for earnings multiples on the higher end. So, a machining business generating annual revenues over $2MM may sell for an earnings multiple approaching 4, where a machine shop with sales below $700k may trade around 2-2.5 times earnings.

This tendency for higher sales volumes to fetch higher valuation multiples is largely driven by the economics of business acquisition financing. Higher volume businesses give buyers more cushion to cover debt service obligations and still have enough left over to pay the new owner a reasonable return on the purchase price.

Sector Comparisons

For a more complete understanding of the market and valuation standards, consider comparisons within the broader manufacturing sector. The chart and table below include key metrics from sales of manufacturing businesses on BizBuySell between 2020 and 2024. Note the tight correlation between median revenue and average earnings multiple.

Machining and tooling businesses are valued consistently with other businesses involved in manufacturing, getting only a slight premium on average. Among all of these businesses, the average earnings multiple rises with the sales volume of the businesses in a fairly tight, market-wide correlation.

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