Fabrication valuations typically include some consideration of the fixed assets held by the entity and the rate of return required on those assets. Related fabrication valuation considerations include the potential capacity of the equipment, the age, state and modernity of the equipment, recent investment in equipment, and the ongoing capital maintenance expenditure as well as the reinvestment capital expenditure required for growth.
Other key fabrication valuation components include overseas competition, competitive advantage, brand name, intellectual property, product mix, customer breakdown, supplier and supplier agreements, flexibility, economies of scale, exposure to and outlook for exchange rates and sheet metal prices, stock and working capital requirements.
Given the asset based of a fabrication business there is the potential to secure debt against the assets. Debt holders typically require a lower return than equity holders, due to the security of the debt on assets. The return debt holders require depends on factors such as default risk, being the risk the entity in unable to service the debt.
Fabrication valuation engagements have included the valuation of a fabrication business specialising in road infrastructure products for a potential national transaction and valuations of a family-owned machining, fabrication and fitting business operating in mining, oil & gas, and power generation for tax purposes.