Selling a metal fabrication business: what buyers check first

What do buyers check first in a fab shop?#

Buyers of a metal fabrication business check first whether revenue will continue, whether margins will hold, how much capital the equipment needs and whether the shop runs without its owner. Strategic acquirers, private equity platforms adding locations, independent sponsors and employee groups weigh these differently, but all of them ask the same opening questions.

Each question is really a request for a record. A broker's summary can say the shop has a strong backlog and modern equipment; the buyer's diligence team will ask for the open order report, the fixed asset register and the maintenance logs that prove it.

Buyer questions and the records that answer them#

The buyer questions below come up in nearly every fabrication diligence. Pull each record before you go to market, because a gap found by the buyer costs more than a gap you explain up front.

Estimate accuracy: the record most shops cannot produce#

Estimate accuracy is the record buyers use to test whether margins will survive new ownership. They want to see quoted hours against actual hours by job and by operation, such as cutting, forming, welding, finishing and assembly, and whether the variance is random or concentrated in certain part types or customers.

Many shops track job costs only in total, or not at all. If your ERP holds routings and labor tickets, a job cost variance report for the last few years is often achievable. If it does not, reconstruct estimate-to-actual for your largest customers and a sample of repeat parts, and start tracking every job now so the trend is visible by the time diligence begins.

Equipment, facility and the fixed asset register#

The fixed asset register should match what is actually on the floor, with purchase dates, cost, accumulated depreciation and serial numbers for each laser, press brake, plasma table, saw and welding cell. Buyers reconcile it during the site visit, and any machine on the floor but not on the register, or the reverse, slows everything down.

Keep the supporting paperwork. The IRS says to keep records relating to property until the period of limitations expires for the year you dispose of it, because they are needed to compute depreciation and gain or loss, which matters in an asset sale. Pair the register with maintenance logs, controller hours where available and a list of equipment leases, and decide early whether an owner-held building will be sold or leased to the buyer.

Certifications, quality and safety records#

Certifications are checked early because a lapse can end a deal or shrink the customer base the buyer is paying for. Typical files include ISO 9001 certificates and audit reports, AISC certification for structural steel work, welding procedure specifications and procedure qualification records, and welder qualification and continuity records under codes such as AWS D1.1.

Safety records get the same scrutiny. OSHA rules require covered employers to keep the OSHA 300 Log, the annual summary and the 301 incident reports for five years after the end of the year they cover, and buyers read them for patterns. Quality records such as NCRs, corrective actions and customer scorecards show whether problems are caught and fixed.

Your operating records are part of what transfers#

Your ERP history, quote archive, job costing and quality records usually transfer with the business and may carry value on their own. Under ASC 805, an acquired intangible is recognized apart from goodwill if it arises from contractual or legal rights or is separable, and the Codification's examples list databases among technology-based intangible assets. Ask your accountant how this applies to your deal.

Customer drawings and models are different: they stay the customers' property, and the buyer gains only the right to keep working under customer agreements, subject to any assignment or consent clauses. If you are exploring licensing operational records to AI developers, decide whether to do it before or after the sale and disclose it in diligence. The SourceX Enterprise Data Value Framework rates drivers such as domain expertise, human-generated signal, recency and rights, and SourceX works through the SourceX five-step transaction of Supply, Rights, Preparation, Approval and Delivery, with the owner approving every step.

A data room checklist for fab shop owners#

A data room checklist turns the buyer questions into a to-do list you can finish before signing with a broker. Most items come straight from systems you already run.

• 1Export sales by customer and by product type for several years from the ERP or accounting system.
• 2Run an open order report with promise dates and attach customer POs and blanket agreements.
• 3Reconcile the fixed asset register to the floor and gather maintenance logs and leases.
• 4Build a job cost variance report, or reconstruct quoted versus actual hours for top customers.
• 5Collect certificates, audit reports, WPS and PQR files and welder qualification records.
• 6Pull OSHA 300 logs, 301 reports and corrective actions.
• 7List customer agreements with assignment, change-of-control and confidentiality clauses.
• 8Write down who quotes, who approves and who owns each major customer relationship.

Illustrative: a second-generation owner gets ready#

Illustrative: a fictional second-generation owner of a structural and miscellaneous metals fabricator plans to sell to a regional platform. The ERP holds orders and invoices back many years, but job costing was only switched on recently, and the owner still prepares most large estimates personally.

Before going to market, the controller reconstructs quoted versus actual hours for the largest general contractor customers, the shop manager reconciles the asset register and finds two retired machines still listed, and the owner trains a senior estimator on bid reviews. When the buyer asks about margin durability and key-person risk, the answers arrive as reports, and diligence moves to price instead of stalling on missing records.