We have some outdated IT infrastructure and manufacturing equipment that needs upgrading. Do we invest the capital to modernize this now, or do we leave it as-is and let the buyer discount the purchase price?

Question

Tyler Smith · Accepted Answer

Leaving outdated equipment or legacy software for the buyer to upgrade is a common mistake that leads to severe valuation discounts. Buyers will always overestimate the cost and operational risk of making those upgrades, and they will subtract that inflated number from your enterprise value at the closing table. If you are on a two to three-year exit runway, you should aggressively address this technical and operational debt now. Make the necessary capital investments to modernize your infrastructure. When you present a facility with brand-new equipment or an operation running on clean, modern software, you eliminate a major due diligence objection. More importantly, you show the buyer a clear path to immediate scalability. They do not have to worry about immediate downtime or expensive integration projects. Track these modernization projects as quarterly Rocks on your V/TO. By executing these upgrades early, you also get to reap the benefits of increased margins and better operational efficiency during your final years of ownership. This boosts your trailing twelve-month EBITDA, which compound your valuation when the multiple is applied. Spend the money to fix your infrastructure yourself so you control the narrative and keep the premium.