Valuing a closely held manufacturer.

• Jurisdiction: United States
• Author: Ellentuck, Albert B.
• Date: 01 January 2002

Facts: FabrikCo Inc. is a Texas corporation engaged in the custom metal and plastic fabrication business. The company has been in existence for 25 years and is owned by three sisters, Karen, Ingrid and Helen. Karen and Ingrid manage the business, while Helen is an inactive investor. * Throughout its history, the company has been moderately successful, with sales and profits growing by about 8% annually. However, FabrikCo is now poised for a period of higher sales and profitability due to anticipated new business in the former Eastern Bloc countries. Over the next five years, the company expects to increase sales and profits by about 25% annually, before returning to a more normal growth rate of about 10%. * As of the most recent year-end, FabrikCo's net asset value is $45 million; its liquidation value is $30 million; its after-tax GAAP income is $3 million; and its normalized income is $3.5 million. FabrikCo has no significant identifiable intangible assets and is not highly leveraged (corporate debt is about $10 million). * There are two small publicly traded corporations comparable to FabrikCo in terms of products and past financial performance. They have traded at an average price/earnings (PE) ratio of 13 over the...