How to Prepare an Aerospace & Defense Manufacturing Company for Sale

The worst time to begin preparing your aerospace manufacturing company for sale is when you're already exhausted and ready to walk away.

By then, your options are limited.

If customer concentration needs to be addressed, you need time.

If your strongest machinists are approaching retirement, you need time.

If margins are being damaged by old contracts, you need time.

If your quality manager is the only person who understands half the compliance system, you need time.

If every major customer calls you personally, you need time.

And if your company depends on certifications, customer approvals, program qualifications or regulatory registrations that could be affected by a change in ownership, you definitely do not want to discover that problem two weeks before closing.

Preparing an aerospace or defense manufacturing company for sale is not about dressing it up for buyers.

The issues that make these transactions different, including how approvals and programs carry through a sale, are covered in our industry guide to selling an A&D manufacturer.

It is about identifying the things that increase value, correcting the issues that create buyer risk, documenting what makes the company difficult to replace, and making sure the business can successfully continue after you leave.

The earlier you start, the more of those things you can actually change.

How far in advance should I prepare my aerospace manufacturing company for sale?

Ideally, one to three years before you expect to go to market.

That doesn't mean every company needs three years.

Some businesses are already well prepared.

Others discover issues that can take significant time to correct.

The point is not to choose an arbitrary countdown.

The point is to evaluate the company while you still have choices.

A good pre-sale review may uncover issues involving:

• Customer concentration
• Program concentration
• Declining margins
• Weak backlog
• Unprofitable Long-Term Agreements
• Aging machinery
• Deferred capital expenditures
• Owner dependency
• Management gaps
• Workforce retirement risk
• Poor job costing
• Quality problems
• Certification issues
• Cybersecurity requirements
• Customer consent or change-of-control provisions
• Real-estate complications
• Environmental concerns
• Weak financial reporting
• Undocumented proprietary knowledge

Some can be fixed quickly.

Some cannot.

Time gives you leverage because it allows you to improve the business before a buyer puts a price on the problem.

What should I do first if I'm thinking about selling my aerospace company?

Start with an honest assessment of the company as a buyer would see it.

Not as the founder sees it.

Not as your accountant sees it.

Not as your largest customer sees it.

A buyer is going to ask:

What am I really acquiring, and what could go wrong after I own it?

So begin by looking at the company through several lenses:

• Financial performance
• Customers
• Programs
• Backlog
• Contracts
• Quality
• Certifications
• Regulatory requirements
• Equipment
• Capacity
• Workforce
• Management
• Facility
• Intellectual property
• Owner dependency
• Growth opportunities
• Capital requirements

Then identify the issues that could affect either value or transferability.

That distinction matters.

Some problems reduce earnings.

Others make the buyer worry that existing earnings won't survive the ownership transition.

Both can hurt the transaction.

Should I get a valuation before I'm ready to sell?

Yes.

In fact, I often think a valuation is more useful before an owner is ready to sell than after.

If you learn that your company is worth exactly what you hoped, wonderful.

If you discover a gap between what the company is worth and what you need for retirement, it is much better to discover that two years before selling than two weeks before selling.

A good valuation should also tell you why the company is worth what it is.

At Accelerated Manufacturing M&A, we evaluate more than 175 financial, operational and strategic data points when valuing manufacturing companies.

For an aerospace or defense manufacturer, those factors can include:

• Program position
• Backlog quality
• Sole-source status
• Long-Term Agreements
• Customer approvals
• AS9100
• Nadcap accreditations
• Customer and program concentration
• Machine capabilities
• Automation
• Lights-out production
• Available capacity
• Workforce depth
• Management
• Owner dependency
• Capital expenditures
• Intellectual property
• Buyer demand

Our detailed guide to what an aerospace manufacturer is worth explains these factors in greater depth.

A valuation shouldn't just answer:

“What is it worth today?”

It should help answer:

“What can I improve before I sell?”

Should I focus on increasing EBITDA or increasing the multiple?

Both can matter, but don't confuse them.

Improving EBITDA can have a powerful effect on value because every additional dollar of sustainable earnings may be multiplied in the transaction.

But owners sometimes become so focused on EBITDA that they ignore the risks affecting the multiple.

Imagine that you increase EBITDA while simultaneously:

• becoming more dependent on one customer,
• losing experienced employees,
• postponing necessary equipment purchases,
• allowing quality metrics to deteriorate,
• or concentrating more revenue in a declining program.

The earnings went up.

The risk may have gone up too.

A better strategy is to strengthen both:

the earnings

and

the buyer's confidence in those earnings.

Our guide to aerospace manufacturing multiples explains the factors that can push the multiple higher or lower.

How should I clean up the financial side of the business before a sale?

Start by making your financial story easy to understand and easy to verify.

Buyers do not like mysteries.

Work with your CPA and M&A advisor to review:

• Three to five years of financial statements
• Monthly P&Ls
• Balance sheets
• Tax returns
• Accounts receivable
• Accounts payable
• Inventory
• Work in process
• Owner compensation
• Related-party expenses
• Non-recurring expenses
• Capital expenditures
• Debt
• Working capital
• Revenue recognition
• Customer deposits
• EBITDA adjustments

You should be able to explain unusual fluctuations.

If gross margin dropped four points in one year, know why.

If one customer doubled and then fell back, know why.

If material costs spiked, explain how pricing responded.

If there are legitimate EBITDA add-backs, document them.

A seller saying:

“Trust me, that expense won't continue.”

is far less persuasive than having the documentation to prove it.

The cleaner the financials, the easier it becomes for a buyer and lender to understand the company.

Why is part-level and customer-level profitability important?

Because revenue does not equal value.

You may discover that your largest customer is not your most profitable customer.

Or that a highly visible aerospace program consumes enormous engineering and quality resources without producing an acceptable margin.

Owners should understand profitability by:

Customer

Program

Part family

and, where systems allow it,

individual part number.

That analysis can reveal:

• underpriced legacy work,
• excessive scrap,
• rework,
• setup problems,
• inefficient routing,
• unprofitable special processes,
• excess engineering support,
• or customers whose contractual terms are hurting margins.

If a problem can be fixed before sale, fix it before a buyer discovers it.

How should I prepare for customer concentration questions?

Do not try to hide concentration.

Explain it.

If one customer represents 40% of revenue, prepare the evidence that allows a buyer to understand the relationship.

Document:

• Length of the relationship
• Number of programs
• Number of part numbers
• Gross margin
• Purchase-order history
• LTAs
• Blanket orders
• Sole-source or dual-source status
• Customer scorecards
• Qualification requirements
• Customer contacts beyond the owner
• Change-of-control language
• Switching difficulty
• Program lifecycle

An aerospace manufacturer with 40% of revenue spread across six programs and dozens of qualified components may represent a very different risk from one with 40% of revenue tied to one component.

Our guide to customer concentration in manufacturing M&A explains how sophisticated buyers look beyond the percentage and evaluate revenue durability, margins, contracts, qualification burden and transferability.

Why should I map revenue by aerospace and defense program?

Because customers don't tell the whole story.

Suppose you serve four major aerospace customers.

That sounds diversified.

But what if most of that revenue ultimately depends on one aircraft platform?

That's program concentration.

Before going to market, build a schedule showing:

Customer → Program → Part Family → Revenue → Margin → Backlog → LTA → Source Position → Program Lifecycle

That tells buyers something your customer list cannot.

It also helps you identify problems while there is still time to address them.

If one program is approaching sunset, you may decide to pursue additional work elsewhere before selling.

If another program is ramping significantly, document that opportunity.

The buyer should not have to discover your program story.

You should present it.

How should I prepare my backlog before selling?

Do not simply produce a spreadsheet with a giant number at the bottom.

Break the backlog down.

A buyer is going to want to understand:

• Customer
• Program
• Part number or family
• Delivery schedule
• Margin
• Purchase-order status
• Cancellation rights
• Pricing
• Material assumptions
• Source position
• Capacity requirements

Also separate:

firm backlog

from

customer forecasts

and from

management expectations.

Those are different things.

Clear documentation increases credibility.

Overstating backlog destroys it.

Should I review Long-Term Agreements before going to market?

Absolutely.

Do not wait for buyer counsel to tell you what's inside your own agreements.

Review important contracts for:

• Remaining term
• Pricing
• Escalation clauses
• Volume requirements
• Renewal provisions
• Termination rights
• Assignment language
• Change-of-control provisions
• Customer consent requirements
• Exclusivity
• Warranty obligations
• Material pass-through provisions
• Performance requirements

A favorable LTA can support value.

An unfavorable LTA can become a problem.

You want to know which you have before marketing begins.

What should I do about AS9100, Nadcap, ITAR and other approvals before a sale?

Create a certification and approval matrix before buyers begin diligence.

Depending on the company, that may include:

• AS9100
• ISO certifications
• Nadcap accreditations
• ITAR registration
• CMMC requirements
• Customer-specific source approvals
• Prime-contractor approvals
• CAGE/SAM records
• Facility-clearance requirements
• Special-process approvals
• Environmental permits
• Other licenses or registrations

For each important item, identify:

Who holds it?

What facility does it cover?

What scope does it cover?

When does it expire?

What customer revenue depends on it?

What happens after a change in ownership?

Is notice required?

Is consent required?

Could reissuance, reapproval or another audit be necessary?

Do not make assumptions about transferability.

Accelerated's article on preserving certifications through an LLC partnership reorganization explains why keeping the historic certified operating entity intact can sometimes be extremely important in a manufacturing transaction.

One structure often used to keep the operating company's legal identity and EIN through a sale is the F-reorganization; our article on why F-reorganizations rule the lower-middle market explains how it works. Whether it preserves a particular certification or customer approval still has to be confirmed with the certification body and the customer.

Our industry guide describes the standard to prepare against: transferring approvals, programs and compliance intact.

The appropriate structure should be evaluated with qualified transaction counsel, tax advisors, certification bodies and relevant customers before closing mechanics are finalized.

What should defense manufacturers review about cybersecurity before going to market?

If your defense work involves cybersecurity obligations, get organized before diligence.

Know which contracts or programs involve requirements surrounding:

• Federal Contract Information
• Controlled Unclassified Information
• NIST requirements
• CMMC
• Customer-specific cybersecurity requirements
• Controlled technical data

Understand:

• What systems hold sensitive information
• Who has access
• What assessments have been performed
• What remediation remains open
• What documentation exists
• What commitments have been made to customers or the government

Do not wait until a buyer's cybersecurity consultant is in the data room to discover that nobody inside the company can explain the environment.

Our article on the CMMC rule for defense manufacturers provides additional background on this area.

How should I prepare my quality system for buyer diligence?

Clean does not mean perfect.

Buyers understand that manufacturing companies have corrective actions.

What concerns them is a pattern that suggests the quality system is not under control.

Before marketing the company, review:

• AS9100 audit reports
• Nadcap audit history
• Corrective Action Requests
• Customer complaints
• Quality escapes
• Returns
• Scrap
• Rework
• Supplier scorecards
• On-time delivery
• Warranty claims
• Internal audits
• Open corrective actions

Close what can reasonably be closed.

Understand the root cause of recurring problems.

Do not bury issues.

Nothing destroys buyer confidence faster than discovering a significant quality problem that the seller appeared to conceal.

How should I prepare the equipment and facility?

Do not buy expensive equipment simply because you think it will impress a buyer.

But don't ignore obvious capital problems either.

Prepare an equipment schedule showing:

• Manufacturer
• Model
• Year
• Capability
• Condition
• Ownership or lease status
• Maintenance history
• Utilization
• Remaining capacity
• Major upcoming repairs
• Replacement needs

For aerospace machining companies, buyers may pay particular attention to:

• 3-, 4- and 5-axis capacity
• Automation
• Pallet systems
• Probing
• Robotics
• Inspection equipment
• CMM capacity
• EDM
• Special processes
• Lights-out capability

You should also have a realistic three-to-five-year capital expenditure outlook.

A buyer would rather hear:

“These two machines will likely need to be replaced within three years, and here's our plan.”

than discover the problem during the facility tour.

Should I invest in automation before selling?

Only if the economics make sense.

Do not automate simply to make the company look technologically impressive.

Invest when automation can:

• Improve throughput
• Increase machine utilization
• Reduce labor dependency
• Improve consistency
• Add capacity
• Increase margins
• Reduce setup time
• Allow unattended production
• Support additional qualified work

If an investment produces a measurable operational advantage, it may improve value.

If it merely consumes cash immediately before the sale, it may not.

Think like the buyer.

How should I prepare the workforce?

Start by identifying the people the company cannot easily operate without.

Then ask:

Who knows what they know?

Aerospace and defense manufacturers can depend heavily on:

• Five-axis programmers
• Experienced machinists
• CMM programmers
• Quality managers
• Manufacturing engineers
• Program managers
• Estimators
• Inspectors
• Special-process technicians
• Security personnel
• Export-control personnel

Create a skills matrix.

Identify retirement risk.

Cross-train.

Document critical processes.

Develop younger employees.

Give key employees opportunities to assume more responsibility.

A buyer is not only acquiring machines.

The buyer is acquiring the people who know how to make those machines produce qualified parts.

How do I reduce owner dependency before selling?

This may be one of the most important things you can do.

Ask:

What stops working when I'm not here?

If customers only call you, introduce them to others.

If only you can quote difficult work, document the process and train somebody.

If every purchasing decision comes through you, delegate.

If you solve every production problem, develop your managers.

If the sales pipeline lives in your head, move it into a system.

If you know which programs are profitable but nobody else does, document the analysis.

You don't need to make yourself irrelevant.

You need to prove that the company is transferable.

The strongest company is one where the founder can leave for several weeks and the business continues performing.

What if key employees don't know I'm considering a sale?

That is normal.

Confidentiality is extremely important.

You should not announce an intended sale to your entire workforce simply because you've started preparing.

In many cases, only a very small group needs to know during the early stages.

Most employees never need to know during the marketing stage, and the process is designed so that nothing on the shop floor gives it away. When a qualified buyer tours the facility, our team can be introduced as manufacturers' representatives bringing a prospective customer through the plant. That is an ordinary sight in any shop, so a visit raises no questions. It also spares employees months of worry over a sale that may never happen. They hear about it at a planned point, typically once a buyer has been chosen and the deal is close, and they hear it from the owner rather than through rumor.

The M&A process should be designed to control:

• Who knows the company is for sale
• When buyers learn the company's identity
• What information buyers receive
• When sensitive customer information is disclosed
• When employees are informed
• When customers are informed

At Accelerated, we do not believe signing an NDA alone automatically qualifies somebody to know the seller's identity.

Potential buyers should also be vetted professionally and financially before highly sensitive information is released.

Preparation is important.

So is protecting the business while you prepare.

What should I prepare for due diligence before going to market?

More than most owners expect.

Do not wait until an LOI is signed to begin looking for documents.

Start assembling and organizing the information buyers are likely to request.

That commonly includes materials involving:

Financials

• Financial statements
• Tax returns
• Monthly reporting
• AR/AP aging
• Working capital
• Inventory
• WIP
• Debt
• Capital expenditures

Customers

• Revenue by customer
• Customer contracts
• LTAs
• Backlog
• Open purchase orders
• Customer concentration
• Scorecards

Operations

• Equipment
• Maintenance
• Capacity
• Inventory
• Facilities
• Vendors
• Subcontractors

People

• Organizational chart
• Employee roster
• Compensation
• Key employees
• Agreements
• Benefits

Quality and compliance

• Certifications
• Audit reports
• Corrective actions
• Customer approvals
• Regulatory registrations
• Cybersecurity documentation

Corporate and legal

• Formation documents
• Ownership records
• Contracts
• Permits
• Leases
• Real estate
• Intellectual property

Accelerated's Lower-Middle-Market Manufacturing M&A Due Diligence Guide contains a much more extensive seller-focused list of documents buyers and acquisition lenders commonly request.

The goal is not to dump everything on buyers immediately.

Sensitive information should be released in stages.

The goal is to have the information ready when the appropriate stage arrives.

Should I clean up the legal and ownership structure before selling?

Review it.

Don't start moving assets or creating entities without professional guidance.

Many owner-operated manufacturers accumulate complexity over decades.

You may have:

• Related-party real estate
• Personal vehicles
• Excess cash
• Shareholder loans
• Family members on payroll
• Unused equipment
• Old entities
• Side businesses
• Intellectual property held outside the operating company
• Intercompany transactions

Identify these issues early.

Then determine with your CPA, attorney and M&A advisor what belongs in the transaction and what should remain with the seller.

For a certification-sensitive aerospace manufacturer, do not casually move the operating business into another entity simply because somebody wants to “clean things up.”

Entity continuity can matter.

What should I do if the company owns the real estate?

Decide what you want to happen to it.

Potential options may include:

• Selling it with the business
• Retaining it and leasing it to the buyer
• Selling it separately
• Moving it into a separate entity before the transaction, when appropriate

The correct answer depends on taxes, financing, the buyer's preferences, the facility's importance to operations and your own retirement objectives.

What you should not do is wait until negotiations are underway to decide whether you want to keep a $5 million building.

Know your position before buyers begin structuring offers.

Should I fix every problem before selling?

No.

That isn't realistic.

Every company has problems.

The objective is to identify which problems materially affect:

earnings

risk

transferability

or

buyer confidence.

Then prioritize.

If a machine is cosmetically ugly but performs perfectly, that may not matter.

If your only CMM is unreliable and every major aerospace program depends on it, that matters.

If one employee is difficult, that's one thing.

If that employee is the only person who knows how to program your most profitable product family, that's another.

Focus on the issues a buyer will care about.

What shouldn't I do while preparing my company for sale?

Don't stop investing in the business simply because you're thinking about selling.

Don't let sales efforts slow down.

Don't postpone necessary maintenance.

Don't suddenly run personal expenses through the business because “I'm leaving anyway.”

Don't lose good employees.

Don't accept bad long-term pricing simply to increase backlog.

Don't take every low-margin job available just to inflate revenue.

Don't pull excessive working capital out of the business without understanding the consequences.

And don't psychologically retire before the transaction closes.

One of the worst things an owner can do is spend two years preparing to sell and simultaneously allow the company to deteriorate.

Buyers notice.

What if retirement is the reason I'm selling my aerospace manufacturing company?

Then prepare for two transitions.

The company's transition.

And yours.

For many founders, the company has been part of their identity for decades.

They know the employees' families.

They've worked through recessions, lost customers, won programs, bought machines when they couldn't sleep at night because of the debt, and built something that supports a community.

Selling isn't simply a financial event.

That's why I encourage owners to think about what they want their life to look like afterward.

Do you want to leave immediately?

Stay for six months?

Consult?

Continue in sales?

Retain equity?

Own the real estate?

Work fewer hours?

Completely retire?

There isn't one correct answer.

But those preferences can influence which buyers and deal structures are appropriate.

You do not have to be ready to sell tomorrow to begin planning.

In fact, that is usually the best time to begin.

How should I think about legacy when selecting a buyer?

Decide what matters before the offers arrive.

Owners frequently tell us they care about:

• Employees
• Keeping the facility open
• Preserving the company name
• Remaining in the community
• Protecting customer relationships
• Continuing investment
• Management opportunities
• Culture
• Growth

Price matters.

Of course it does.

But if legacy matters too, define it before you're looking at competing LOIs.

Otherwise, emotion can make evaluating offers much more difficult.

Different buyers may offer very different futures.

A strategic buyer may provide capabilities and customer reach.

Private equity may provide growth capital and allow rollover ownership.

A family office may pursue a longer ownership horizon.

The buyer that offers the highest headline number is not automatically the buyer that best accomplishes your objectives.

Our aerospace and defense manufacturing M&A case studies show several real examples where buyer experience, customer continuity, manufacturing capability and an owner's objectives affected the outcome.

When am I actually ready to go to market?

You are getting close when you can confidently answer these questions:

• Do I understand what my company is worth?
• Can I explain why?
• Are my financial statements clean and understandable?
• Can I defend my EBITDA adjustments?
• Do I know profitability by major customer and program?
• Can I explain customer concentration?
• Do I understand program concentration?
• Is my backlog documented?
• Have I reviewed major LTAs?
• Do I understand important change-of-control provisions?
• Are certifications and approvals current?
• Do I understand what may happen to them in a transaction?
• Is quality performance under control?
• Do I understand upcoming capital expenditures?
• Is my equipment list accurate?
• Have I identified key employees and retirement risks?
• Can management operate without me?
• Are critical processes documented?
• Is due-diligence information organized?
• Do I know what I want to happen to the real estate?
• Have I thought about what I want personally after closing?
• Do I know what qualities I want in a buyer?

You don't need perfection.

You need clarity.

What does a practical aerospace M&A preparation timeline look like?

There is no universal timeline, but this is a useful way to think about it.

24–36 months before a potential sale

Focus on issues that take time.

• Reduce owner dependency
• Develop management
• Address workforce succession
• Diversify programs where practical
• Correct persistent margin problems
• Evaluate major capital needs
• Improve job costing
• Strengthen quality systems
• Address compliance weaknesses
• Build recurring revenue visibility

12–24 months before a potential sale

Begin making the company easier to evaluate.

• Obtain a manufacturing-specific valuation
• Review customer and program concentration
• Analyze LTAs
• Document sole-source positions
• Review backlog quality
• Organize financial reporting
• Resolve open quality issues
• Build certification and approval matrices
• Review employee retention
• Clarify real-estate strategy

6–12 months before going to market

Prepare the transaction.

• Update the valuation
• Begin assembling the data room
• Normalize EBITDA
• Prepare equipment schedules
• Organize customer and program information
• Review contracts
• Review change-of-control requirements
• Coordinate certification strategy
• Identify likely buyer groups
• Prepare the company's growth story
• Establish confidentiality protocols

Immediately before going to market

Make sure the business is still performing.

• Update financials
• Refresh backlog
• Update customer information
• Confirm quality status
• Confirm certifications
• Finalize marketing materials
• Qualify the buyer strategy
• Keep running the company

That final point deserves emphasis.

Keep running the company.

The sale process is not finished until it is finished.

What's the biggest mistake aerospace manufacturing owners make when preparing for a sale?

Waiting until they've decided they are definitely selling.

Preparation should happen before commitment.

If you spend two years improving the company and then decide not to sell, you've still built a stronger company.

You may have:

• Better management
• Cleaner financials
• Higher margins
• Stronger systems
• Better customer documentation
• Improved workforce succession
• Better equipment planning
• Less owner dependency

None of that work is wasted.

But if you wait until you're desperate to leave, the buyer gets to decide which problems matter and how much they're worth.

I'd rather have the owner make those decisions first.

What happens after the company is prepared?

Preparation is only the first stage.

Once the company is ready, the next steps involve establishing value, positioning the business properly, identifying and qualifying potential buyers, protecting confidentiality, negotiating competing offers, navigating due diligence and getting to closing.

Our complete guide to how the sale itself works walks through that broader process.

The important thing is not to rush from:

“I'm thinking about retiring.”

straight to:

“Put my company on the market.”

There should be something in between.

That something is preparation.

The company you sell should be stronger than the company you decided to sell

Aerospace and defense business owners often spend decades creating value that doesn't appear neatly on a balance sheet.

Customer approvals.

Program history.

Qualification.

Processes.

Engineering knowledge.

Certifications.

Specialized equipment.

A skilled workforce.

A reputation for delivering components that cannot fail.

You cannot manufacture that history six months before retirement.

But you can make sure buyers understand it.

And you can make sure unnecessary weaknesses don't obscure it.

Start before you're ready.

Understand the value.

Fix what is fixable.

Document what makes the company special.

Protect the things that must survive the ownership transition.

Build a company that can function without you.

And determine what you want your own next chapter to look like.

Then, when the right time and the right buyer arrive, you aren't selling because you have no other choice.

You're selling because you've prepared the company—and yourself—to choose the right one.

If you're ready to start, request a confidential consultation and we'll talk through value, timing and your options.