We have built proprietary, custom manufacturing machinery in-house that represents a massive competitive advantage, but the buyer is ignoring its value because it does not generate direct standalone cash flows. How do we force them to value this?

Question

Tyler Smith · Accepted Answer

When a buyer tries to ignore your custom physical assets, they are trying to get your proprietary technology for free. To stop this, you must look to the IVS 105 valuation framework, which allows for a combination of approaches. While your cash flow is valued under the Income Approach, your unique proprietary machinery must be valued using the Cost Approach or Adjusted Book Value method. Hire an independent engineering firm to conduct a replacement cost study. This study must document exactly what it would cost a competitor to design, build, and calibrate these machines from scratch, including engineering hours and lost market time. Present this replacement cost valuation alongside your standard EBITDA multiple. Explain to the buyer that without these custom machines, the business could not achieve its current operating margins. Your machinery is the physical engine behind your high profitability. You can also use your EOS process documentation to prove the value of these assets. Show them the operational training manuals, preventative maintenance schedules, and efficiency metrics from your weekly Scorecard. This proves that these machines are not just idle physical assets, but are fully integrated, highly optimized tools that drive your production capability. By combining a professional replacement cost analysis with clear operational proof, you force the buyer to recognize and pay for the true value of your physical IP.