How to Sell a Motion and Power Company

Every pump, gearbox, compressor, and engine your company has built has a nameplate somewhere. It carries a model number, a serial number, and your name.

When you sell a motion and power company, those nameplates are what the buyer is really bidding on.

Each one marks a machine still running at a customer's site, and each machine will need seals, bearings, impellers, gear sets, filters, rebuilds and, one day, a replacement. A buyer that can count those machines, and can see how reliably their owners come back to you, can afford to pay for years of revenue you haven't booked yet. A buyer that can't will price your company like any other equipment maker.

This guide explains how to sell a company that makes engines, turbines, pumps, valves, fluid power, power transmission or air-handling equipment so that the value in the field shows up in the price. It covers what to prove, what to protect, and what to settle before you sign anything.

Start with the serial numbers, not the income statement

Every manufacturing sale begins with normalized earnings. In this sector, what a buyer will multiply those earnings by depends mostly on what happens after a unit ships.

New equipment is sold once, often in competitive bids against other makers. Parts, service, and rebuilds are sold again and again to an owner who already trusts your design and whose maintenance crew already stocks your part numbers. That aftermarket revenue usually earns higher margins and repeats more predictably, so a company where it makes up a large share of sales is generally worth a higher multiple than one that lives on new orders.

Three other things shape how a buyer reads your earnings:

• The brand in its niche. If engineers write your model into specifications, or plant managers reorder by your name, a buyer is getting a position that would take a competitor years to win.
• The end markets. Power generation, oil and gas, water, HVAC, agriculture, construction, mining and general industry rise and fall on different cycles. A spread across several of them steadies the forecast.
• Products that already meet the rules. Lines certified to current emissions and efficiency standards keep selling when the standards tighten. Lines that need redesign become capital projects for buyers, and the price reflects that.

Our Motion & Power industry page lists the value drivers buyers weigh. The rest of this guide is about proving them.

Turn the installed base into evidence

Most owners know their installed base is valuable. Far fewer can hand a buyer a file that shows it. That file is the most useful thing you can build before a sale, and it is the piece that usually takes the longest.

Build the register

List every unit you can trace that is still in service: customer, site, model, serial number, year shipped, and, where you know it, the duty it runs. Shipping records, warranty registrations, service tickets, and parts orders by serial number are the usual sources. A register that is mostly complete and honest about its gaps is more persuasive than a guess at how many units are out there.

Split the revenue

Report new-unit sales separately from parts, service, rebuilds, retrofits, and service agreements, each with its own margin, for at least the last three to five years. If your accounting system has always lumped them together, the split will have to be rebuilt from invoices, which is one more reason to start early.

Show how much of the base still buys from you

Not every owner of your equipment buys your parts. Some buy will-fit parts from independent suppliers, and some hand maintenance to a service shop that sources wherever it likes. Tying parts sales back to the register shows a buyer how much of the base you actually capture, and where the room to grow is. A seller who has measured that leakage, and can explain it, looks like someone who understands the business rather than someone hoping the buyer won't ask.

Be honest about the parts shelf

Supporting old equipment means stocking parts for products you may have stopped building years ago. Buyers will look hard at that inventory, because it sits inside the working-capital target that adjusts your price at closing. Know which parts turn, which are kept as a service obligation, and which are simply old. Our article on working capital in manufacturing M&A explains how that target is set.

At the size of company we represent, expect a buyer's quality of earnings review to test all four of these: the split, the margins on each stream, warranty reserves, and the inventory reserve. Commissioning your own review before going to market is often money well spent.

Keep the dealers selling while you sell

For many motion and power companies, the dealers and distributors are how the product reaches the customer and how the installed base gets its parts and service. They are also the group most likely to react badly to a rumor.

Protect the channel from the news

A dealer who hears its supplier is for sale and doesn't know who the buyer will be has every reason to start paying more attention to a competing line. A competitor who hears the rumor may make sure your dealers hear it too. Confidentiality in a motion and power sale is as much about the channel as about employees. Dealers should hear the news from you, at a planned point, with an answer to the question they will ask first: what happens to us?

Know what the law lets a buyer change

Many states protect equipment dealers. Some require good cause and advance notice to end a dealership, require the supplier to buy back the dealer's inventory and parts when one ends, and bind a buyer of the manufacturer's stock or assets to the same rules. Before you go to market, gather every dealer, distributor, and representative agreement, note its termination, assignment, and change-of-control terms, and map which states' laws apply. Our article on whether manufacturers' reps or distributors are helping or hurting your business is a useful companion.

Ask every buyer for its channel plan

A strategic buyer may want to fold your product into its own distribution. A private equity platform may want to consolidate dealers across several companies it owns. Either can work, but only if the plan respects dealer laws and keeps the dealers supporting your installed base. Ask for the plan before you choose a buyer, not after the letter of intent is signed.

Make sure the product can still ship on the first day after closing

Motion and power products often cannot be sold without an approval behind them, and each approval follows its own rule when ownership changes. The structure of the deal decides how many of them have to be won again.

In a stock sale, the company that holds the approvals stays the same, so most of them continue with notices or updated filings. In an asset sale, the buyer becomes a new manufacturer and should expect to need many approvals in its own name before it marks or ships product. For an equipment maker, that difference can set the closing date.

• Engines: EPA certificates of conformity cover each engine family for a model year. In an asset sale, the buyer should plan on its own manufacturer code and certificates, and the seller remains responsible for engines it built.
• Motors, pumps, air compressors and transformers: Department of Energy efficiency certifications name the manufacturer. In an asset sale, the buyer should expect to certify each basic model, and obtain its own motor certification numbers, before selling.
• Boilers, pressure vessels, relief valves and oilfield valves: ASME certificates of authorization cannot be transferred to another entity, and API Monogram licenses are tied to a facility. An asset buyer needs its own, and that review is often the longest item on the list.
• Safety listings: equipment listed by a recognized testing laboratory needs notice in a stock sale and the laboratory's consent, or new listings, in an asset sale.
• Domestic content: products sold into federally funded infrastructure must meet Buy America rules, which depend on where and how they are made. A buyer that moves assembly or changes suppliers can lose eligibility.

A tax structure can sometimes give a buyer the benefits of an asset purchase while keeping the operating company intact. Our article on F-reorganizations explains the most common one, and our article on preserving certifications through an LLC reorganization covers companies taxed as partnerships. Whether a given structure keeps a given approval still has to be confirmed with the body that issued it.

The regulatory questions on our industry page go through each approval in detail, with the regulations behind them.

Account for every unit you have ever shipped

The installed base is your most valuable asset, and it is also where your oldest liabilities live. Equipment you sold decades ago is still exposed to product claims, and older pumps, valves, gaskets, and turbines can carry asbestos claims long after the products changed.

Buyers will ask three questions: what claims have been made, how were they resolved, and what insurance stands behind them? The third question often takes the most work. Older occurrence-based policies can still respond to claims from the years they covered, but only if someone can find them. Reconstructing that insurance history, with a broker or coverage counsel, is detective work best done before a buyer's lawyers start asking.

Structure decides who carries the risk afterward. In a stock sale, the company keeps every claim tied to equipment it sold, and the buyer protects itself through price, indemnities, and escrow. In an asset sale, the buyer generally takes only the liabilities it agrees to assume, but courts make exceptions, and some states, including California and New Jersey, hold a buyer that continues the same product line responsible for defects in the seller's products. Excluded liabilities, a seller entity that stays in existence with its insurance, and indemnity terms that match the real exposure are how the two sides divide it.

Warranty belongs in the same file. Show claims and reserves by product line, and the terms promised on units still under warranty, so a buyer can see what it is inheriting.

Find the buyer who wants your installed base most

Motion and power companies attract a wide field of acquirers, and they value the same company very differently depending on what they would do with its aftermarket.

• Larger equipment makers and industrial groups may want your brand, your niche, your dealers, or the service revenue from your base. A buyer that already makes something similar may value you mainly for the customers; one that doesn't may value the product line itself.
• Private equity platforms building groups of flow control, power transmission, or engineered equipment companies look for recurring aftermarket revenue, management depth, and room to add more companies.
• Family offices and independent sponsors often hold longer, keep the name and the dealers in place, and can suit an owner who wants to stay involved.
• Foreign acquirers may want U.S. production and distribution, but they bring extra steps, covered below.

Our guide to family offices, private equity and strategic buyers compares their objectives and deal terms.

Financing is only the first test. For a motion and power company, we also want to know how a buyer will:

• support equipment that has been in the field for decades, including parts for discontinued models
• treat the dealers, and whether its channel plan respects the dealer laws
• keep the approvals that let products ship
• keep making the product in a way that preserves Buy America eligibility, where it matters
• handle legacy claims and warranty obligations

When the buyer is foreign

Some products in this sector are export-controlled, including corrosion-resistant pumps and valves for chemical processing, certain bearings and motor drives, aircraft and marine turbine technology, and military engines. That can make a filing with the Committee on Foreign Investment in the United States mandatory at least 30 days before closing. A company registered under the ITAR must also notify the State Department at least 60 days before selling to a foreign person, and it can't show drawings for controlled products to a buyer's foreign engineers without authorization.

Makers of battery cells, modules and inverters that claim the federal advanced manufacturing production credit have an extra screen to run. A buyer with certain ties to China, Russia, Iran or North Korea can end the credit, and because the test is applied on the last day of the tax year, it can put the closing year's credit at risk.

Write the aftermarket into the deal

Once offers arrive, the headline price is only one of the numbers that matter. In a motion and power sale, several terms decide whether the value of the installed base actually reaches you:

• Stock, asset or reorganization. This decides which approvals carry over, who answers for equipment already sold and how the buyer is taxed. Settle it in the letter of intent, not in the purchase agreement.
• The working-capital target. Agree how parts inventory will be counted and reserved before exclusivity, when you still have alternatives.
• Earnouts. A buyer may offer to pay part of the price later if aftermarket revenue holds up. Be careful: after closing, the buyer controls pricing, dealers and service, so define the measure tightly or keep the earnout small.
• Legacy liabilities and insurance. Decide which claims the buyer assumes, which stay with you, and who keeps the historical policies.
• Dealer consents and approvals. List the consents, certificates and notices that are conditions to closing, and who is responsible for each.
• Representations and escrow. Expect specific promises on product liability, warranty and certification compliance, with escrow sized to those risks rather than to a rule of thumb.

Once the letter of intent is signed, you generally can't negotiate with anyone else, so the points above belong in it. Our article on the critical elements of a letter of intent covers the basics, and our glossary of common terms in asset purchase agreements defines the rest.

Give yourself two years, not two months

From valuation to closing, a sale typically runs 12 to 18 months. The preparation that makes a motion and power company worth more takes longer, and the work with the longest lead time is usually the least glamorous:

1. Reconstructing the installed base. Months of matching shipping records, warranty cards, and parts orders to serial numbers.
2. Finding the old insurance. Tracking down policies that may be decades old, and confirming who issued them.
3. Separating aftermarket revenue. Rebuilding several years of sales by stream, with margins that hold up in a quality of earnings review.
4. Reviewing the dealer agreements. Collecting them, reading them and mapping the state laws that apply.
5. Organizing approvals. Gathering every certificate, certification report, stamp file and listing by product and site.
6. Classifying exports. Confirming the classification of each product so a foreign buyer's timeline is known in advance.

None of this requires you to decide to sell. All of it makes the company easier to run and easier to value, and it puts you in a position to choose your timing rather than have it chosen for you. Our countdown timeline for a manufacturing exit shows how to pace it, and the preparation checklist on our industry page turns it into a list. When buyers arrive, they will test all of it in due diligence.

Selling the company your nameplate built

Your machines will keep running long after the sale. The question is whether the price you receive reflects that.

The owners who are paid for their installed base are the ones who can show it: the units in the field, the parts and service they buy, the dealers who support them, the approvals that keep products shipping, and the history behind every claim. Prove those, choose a buyer who wants them for the right reasons, and write them into the deal before you sign.

Accelerated Manufacturing M&A acts only for the seller, never for both sides of the same transaction, and runs every sale as a confidential, staged process. If you're weighing a sale or a recapitalization of an engine, pump, valve, fluid power, power transmission or air-handling equipment company, we can start with a confidential conversation about what your installed base is worth and when to bring it to market.