Issue link: https://iconnect007.uberflip.com/i/1447212
92 SMT007 MAGAZINE I FEBRUARY 2022 "Definitely," Chuck said, confidently. "Tell us about inventory, Frank," Maggie requested. "Ivy has about 10 weeks of inventory," he began. "Some of it is dated, so potentially unusable. A rule of thumb is that each week of inventory costs 1% of a year's inventory in tax. When you consider they purchase about $10 million in inventory per year, that's a $1 mil- lion tax." "Can we improve on that?" John asked. "I've estimated that we will be able to cut it in less than four weeks," Frank replied. "Don't forget uptime is only 12%, so there is opportunity there as well," John chimed in. "It's interesting that a cheapskate like Price missed so many ways he was losing money," Maggie commented. Murmurs of agreement followed. "So, what is the bottom line? Should we buy it for the $1.5 million that Price is asking?" John asked. "Well, sales are $15 million, and profit is $250,000 aer Price gives himself a $500,000 salary. He is asking $1.5 million, but this comes with no assets as they rent the building and the equipment is worthless. We would be essen- tially buying 'goodwill.' However, in electron- ics assembly, a price-to-earnings ratio is typi- cally 10 to 20 (Note: 10 X $250K = $2.5M), so the $1.5 million doesn't seem too high at all," Frank said. ere was a lull in the discussion as the team members thought over the information. Frank added, "I'm extremely optimistic that we can make this work for us, as Price granted me permission to speak with their main cus- tomers. ese customers have difficulty find- ing assemblers, as they have small lot sizes. I spoke with them, and they will stay with us. All seemed quite happy that we might take it over." "Let's offer $1.25 million, as we will need to invest quite a bit of time and money to bring it up to reasonable standards," Maggie said. "Chuck, if this deal goes through, you will become the general manager at the business we plan to call Ivy Benson Electronics," John said. "What do you think about using Phil Consol and Tanya Brooks as your two lead engineers?" Chuck was not the type of chap who easily became embarrassed or emotional, but his face grew a little pink and, if you looked closely, a slight tear could be noticed in the corner of each eye. Epilogue: One week later, Ned Price accepted a negotiated offer of $1.4 million. He insisted Figure 2: Many of the eight Muda were present at Ivy Electronics.