Mech Agriculture Information Memorandum

Mech Agriculture Information Memorandum Ref: 33826

ABC Business Sales Ltd Lic REA 2008

PREPARED BY:

Steve Davey Business Broker ABC Business Sales 027 257 6856 steved@abcbusiness.co.nz

Statement of Passing Over Information This Information Memorandum has been compiled primarily by the collection, classification and summarisation of records, documents, representations and financial information (“Compilation”) supplied by the Vendor or the Vendor’s agents. Accordingly ABC Business Sales Limited (ABC) is merely passing over the information as supplied to us by the Vendor or the Vendor’s agents. The information herein has been sighted and approved by the Vendor.

Warning While we have compiled the Compilation from such records, documents, representations, and financial information supplied to us by our client, we cannot guarantee its accuracy and reliability and we have not checked, audited, or reviewed the records, documents, representations, and financial information and therefore to the maximum extent permitted by law neither ABC nor any of its salespersons nor employees accept any responsibility for the accuracy of the materials from which the Compilation has been prepared.

Confidentiality This Information Memorandum and all information relating to the Compilation are strictly confidential. You must not distribute, copy or disclose this Information Memorandum or any of its contents to any person (other than your professional advisers on a need to know and confidential basis) without the prior written consent of ABC Business Sales Limited. If you receive a copy of this Information Memorandum but are not an authorised recipient or a person responsible for delivering it to an authorised recipient, you must immediately return this Information Memorandum to ABC Business Sales Limited. By receiving this Information Memorandum, you irrevocably agree to these confidentiality terms and any other terms set out in this Information Memorandum. The information contained herein has been sighted and approved by the Vendor.

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Contents Business Overview

7

Background History

8

Executive Summary

9

Brands

11

Competitive Advantage / Suppliers

12

Location - Lease Terms

14

Marketing

16

Innovation & Systems

17

Financial Performance

19

Staff & Opening Hours

21

Summary

23

Financials

25

Brokers

26 27

Next Steps

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Business Overview Mech Agriculture is one of Manawatu's renowned and reputable suppliers of farming equipment and general machinery. The business featured in this document is the result of many years of hard work and dedication which presents a unique and valuable opportunity to a discerning buyer/s. Mech Agriculture focuses on meeting all farmers needs. An extensive and proven range of brands of farm machinery are supplemented by repair and rental income streams.

Mech stocks a range of equipment from sprayers to cultivation / seeding machines and from grassland machinery to bigger feedout equipment.

This Business has been operating since 1976, celebrating their 47th year in business this year. In what started as selling farming machinery has since grown to also, 'service what we sell' which gave Mech exclusive access to opportunities to sell machinery, replace,. repair or upgrade existing machinery. In parallel to this, they stock used and refurbished machinery which has proven to be another strength. With a loyal Customer base, sustained revenues, increasing margins and very real threads of growth. During the COVID-19 pandemic and lock downs Mech continued to operate under an 'essential' business and was able to continue on its growth path.

There are two highly successful revenue streams via hireage and repair business.

Indeed, the business has been very successful in acquiring and refurbishing assets for its Customers but also giving them access to equipment when they need it.

With its own specialized workshop, Mechs undertakes setup and repair work. The skilled professional team are renowned for regularly exceeding expectations through high quality workmanship and on time delivery. Under this model refurbished machinery is marketed under the ‘Revive’ brand and comes with a three-month warranty. In addition, where customers don’t trade in their used machinery, Mechs will sell selected used machinery on behalf of the owner (which is a welcome service and benefits long term relationships). As can be seen through the Revive 75 Point Checklist, there is care and attention to detail for all equipment, which is a distinct competitive advantage for this business. Revive is a strong revenue stream as well as a well recognised and respected brand in the industry.

This business succeeds because of its dedication to exceeding expectations and delivering value Mech Agriculture

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Background History Mech Agriculture celebrated its 45th year of operation in 2021 and, over that time, the business has developed into a true success story of the Manawatu Agricultural sector. Operating out of initial premises in Kelvin Grove, Palmerston North, the business was the brainchild of Brian Capper and started out repairing and refurbishing farm machinery. Brian actually started selling machinery in 1966 but moved to a formal business structure in 1976. In 1985 Mech Agriculture moved to its current site where it remains and continues to build loyalty (23 Noel Rodgers Place, in Palmerston North).

The business was formed out of a desire to service and provide quality equipment to the Manawatu farming sector and established links with other centres in the region. Years of organic growth and success followed, and the business quickly gained traction in the local rural economy.

Over time the range and level of services was expanded, and the business developed a footprint and loyalty from customers grew. Brian’s son Royden and Mike Walton joined the business in 2006 and the focus of the business moved to target farms, farmers and the people that run farms – particularly small to medium farms which would do their own R&M on their machinery or be working hard to extend the life of their capital. This meant specialisation and a move away from general engineering work – also meaning that the labour rate and margin recovery on jobs also increased.

Part of that focus was moving to ‘service what we sell’ and this had two distinct and material pay offs for the business. Firstly, this approach embedded and locked in relationships and secondly this meant that Mechs had exclusive access to opportunities to sell machinery to farmers to replace or upgrade existing kit. In parallel to new retail and servicing, Mechs has a long history of stocking used and refurbished machinery another strength of the business. Mech Agriculture has continued to consolidate its market position as the Manawatu experienced a period of unprecedented growth.

During this time the business also became smarter, directing its activities toward margin producing endeavours while in parallel working hard to make systems robust and eliminate waste. Margins continue a linear upward path to this day with Gross Profit percentage a key focus of the owners. Sales staff are an important component of the business, but they are also attuned to the margin focus – sales staff are performance measured of their contribution to Gross Profit. This is one part of a structured and disciplined approach to business.

The owners, whose tenacity and drive saw the business continue to achieve although the pandemic and the following recession negatively challenged the business (as it did for all sectors), the business was able to continue its growth path.

At the current time Mech Agriculture is a strong business with an even stronger position in its community and in the minds of its customers. This goodwill is the result of many years of effort and a long-established record of success.

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Executive Summary

Sales 2023

Gross Profit

Staff

Asking Price

$6.5m $2.1m

9

By Negotiation

Stock On Hand

$850k Mech Agriculture

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Brands The strengths here are clear as Mech Agriculture features a reliable, dependable (and most importantly) trusted brands which customers keep coming back for.

Recent marketing has gained significant traction in the Manawatu market and beyond, meaning that staff field enquiries from all over the region. The business stocks quality New Zealand made products, as well as known and trusted overseas brands.

The number of brands is extensive in terms of the quality and activities they cover for new equipment. Used equipment tends to be the brands below but can include other brands (particularly where they are traded)

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Competitive Advantage This business succeeds because of its dedication to exceeding expectations and delivering value. Its customers reflect this in their sustained business and the feedback (some of which can be seen on the website). The owners regularly get feedback that Mechs provides a better quality product and service, and this is because of the following factors: • The team know the products intimately and also can diagnose solutions for customers. That is, recommendations are complete and accurate and trusted • The set up and delivery service is very appreciated • The ability for farmers to trade their used machinery or have Mechs sell it “on behalf of” has resulted in a great reputation for its used machinery • The business and more importantly the market are confident in the product range • The sales team relentlessly follow up leads • Most importantly, the team deals directly with farmers • Revive refurbishment system and brand • Our dedication to creating customer value

Suppliers Suppliers are treated like partners in the business and the bulk of them are a result of long standing relationships and trust. Below are a number of what we would call key suppliers, whose relationships are strong, long lasting and embedded: Machinery Suppliers:

Other Suppliers:

Farmgear

Steel and Tube / Fletchers / Vulcan (steel supply)

Hustler Equipment

Aglink

Redback Global

Sparex

HW Industries

Bareco

Rata industries

Hytech Lubricants

Farmchief Machinery

Central Auto Part

Agtec Machinery

Applied Ind Tech

Farmgard

Total Paint Suppliers

Maxam

Agripower

Fencepro

Silvan

C-Dax Mech Agriculture

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Location & Lease Terms The site is subject to an existing lease and is owned by a related entity of the the vendors. The lease will be re-written as there will be shared property use, as Mech Agriculture does not currently use the entire site. The bulk of Mech's customers are within a 1.5 - 2 hour radius reaching out to Taranaki, the Central Plateau, Hawkes Bay and down to Wairarapa

Location

Mech Agriculture is located at 23 Noel Rodgers Place, Milson, Palmerston North.

Lease Terms

Term:2 Years Rights of Renewal: 2 of 2 years each Final Expiry Date: 31 December 2027 Lease Amount: $163,063.35 annually Next Rent Review 1 January 2024 The Manawatu Market The Manawatu is a unique environment. It combines rugged natural beauty with some of NZ’s most productive soils and farms. This is matched by the tenacity and determination of those who set up thriving businesses within the region. Farmers are no exception to this, and this core customer group is the lifeblood of the business.

Suffice to say that an industry that is no nonsense and to the point delivery of value has shaped what Mech Agriculture does. It is also fair to say that the uniqueness of our environment means that we will bring something special which will be difficult to replicate from ‘scratch’. Innovation is key, as well as communicating clearly and being to the point – this is appreciated by our customers and ingrained in how we do business.

Mechs has a customer group, many of whom who are lifelong customers, this has been established ourselves across the generations to ensure that the business is the first port of call for not only the farmers themselves but also their sons and daughters. There is also an easy synergy for services and products from sheep, beef, and dairy farming into other sectors – such as growers and horticulture.

Traditionally the Manawatu area is not affected by boom or bust. This results in a stable and reliable client base.

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Marketing Whilst the owners from time-to-time market through mass media channels, the most effective method is via direct marketing. The owners have invested in marketing to ensure they keep regular contact with their clients and customers. All customers are recorded in a database and categorised so that they can be marketed to in a targeted way. The database is regularly updated and contains several thousand customer listings.

The business intends to expand its social media presence, which represents an opportunity to widen reach further but also to connect with younger farming ‘successors’. The website www.mechs.co.nz is straightforward and easy to navigate, with quick access to new, used, and refurbished machinery as well as clear communication of everything else the business has to offer.

But the business also finds that its customers and farmers in general like receiving materials that they can hold. Six times a year, a flyer (right) is produced containing 8 pages of information and offers. It is delivered to rural mailboxes in the 2 hour target radius.

Suppliers often contribute to it by providing copy, deals. This is an example of highly effective direct marketing.

There is an opportunity to sell advertising in this direct marketing.

There is certainly value in the database that’s been built.

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Innovation & Systems Mechs is an innovate business with well thought out best practice systems. This is a huge advantage to a buyer who can rest assured that the staff have quality systems to follow. Some examples include the following: Deal Score Card

A scorecard to aid decision making around the purchasing of used equipment. This puts the considerable experience Mech has into a scorecard for use by all staff.

Revive Checklist

The revive checklist is used to service and ready used equipment for sale. Think of like Toyota Signature Class. Equipment is then sold under the Revive Brand.

The business is fully systemised with best practice systems and processes. The business has documented and approved Standard Operating Procedures with training provided on all aspects.

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Financial Performance Below are normalised accounts and are reflective of a working owner operated business and a return to that owner. It is worth noting that the team undertake budgeting on an annual basis but also forecast further ahead. Sales budgets are reviewed quarterly but, as a general statement, the business has exceeded budget year on year for the past 3 years. The owners advise that the 2024 year to date has been a challenge but is reflective of an election cycle. they have seen this before and will see it again. the last few months have had good sales and they believe things should kick on now that the election is over.

$6.5m

2021

2022

2023

Income

$6,451,049

$7,134,349

$6,523,634

Gross Surplus

$1,708,529

$2,200,476

$2,099,095

Gross Profit %

26%

31%

32%

Expenses

$626,793

$643,611

$645,841

Net Profit

$1,081,736

$1,556,865

$1,453,254

EBPITDA

$1,081,736

$1,556,865

$1,453,254

FY23 Revenue

$1.45m FY23 EBPITDA

32% FY23 Gross Profit Margin

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Staff and Opening Hours Staff

Key Staff

The owners have built up a great team that all know their roles and work as a team to get things done. Details are as follows:

Ben – Sales Started with the company 2009 from school in the workshops, has progressed through to sales and as a result of his long experience comes from a very solid position of selling with confidence in the products he is representing. He remains positive always and is a cheerful person around providing energy to the atmosphere. He would very rarely say he had too much work, somehow, he finds a way to get through more work without little pushback! He gets on very well and is liked by his customers and colleagues.

Brent – Operations Team Leader Started with the company 2003 in the workshops, he progressed through to sales but has found his passion in organising the workshop, deliveries and helping customers out with solutions. He organises the many moving parts to a varied job role getting all the necessary resources lined up to tackle the job. His wealth of experience is a goldmine of knowledge for many different machine challenges. His previous experience in sales means he understands the needs and can fill in if needed. He loves helping out anyone he can and will readily make a fix for any problem around the business. He is creative and gets along well with the staff.

Gareth – Workshop Foreman We say, ‘if you want to know how to do it – ask Gareth’! He will come up with the most effective way to get stuff done, understands the balance between customer service and cost using his creative but practical aptitude. He started 2003 and has risen to the position he is in with his natural talent. He loves training new members up in the skills he has to share with the next generation and does this well.

Mark – Parts sales Mark has a very broad knowledge of a huge range of machinery and where to source parts for them. He is the familiar face who greets every customer by name when they come in the door!

Kelvyn – workshop technician Kelvyn has many years of experience makes him key to assessing trade-in machines with great accuracy.

Opening Hours 7.30am to 5pm Monday to Friday CLOSED Saturday & Sunday

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Summary Overall this is a fantastic opportunity to acquire a well run machine that has shown it's worth to the local community over the last few years.

There are also still considerable opportunities to take it to the next level.

Reason For Sale

Growth Opportunities

The owners have a new opportunity and are wanting to focus solely on that.

The owners have done very well to build a business that achieved sales of over $7.1m last year (2022). Despite that they do not believe the business has reached its potential and would suggest the following opportunities exist:

Training

The owners are happy to provide training before settlement to ensure a good handover and would be available post settlement for a period of assistance if needed.

Social Media - Expanding its social media presence on more social platforms to reach the wider younger farmer 'successors'.

Flyer - Selling advertising space in well recognised flyer

Asking Price

Dedicated Field service -set up your own dedicated field service

Asking price is By Negotiation.

Note that the book value of the tangible assets is around $240k and stock is estimated at $850k.

In terms of the intangible (Goodwill etc) value its down to what is it worth to acquire a business that has consistently produced profits in the range of $1m to $1.6m annually.

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Financials

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The Brokers We are here to assist you with the buying process. We are business sale specialists and have seen it all before. We are here to help you with this so feel free to talk to us at any time.

Steve Davey Business Broker

Ron Schalkwijk Business Broker

Steve has been a Business Broker for over 7 years now and has helped in over 100 sale and purchase transactions.

Steve is a former Business Banker and Regional Manager at ANZ so is also well versed in financial analysis and finance.

He is a multi award winning broker who has been awarded Top Performer Status in each of the last 4 years at ABC. He is passionate about helping business owners with the successful exit of their business whilst also helping buyers to create an independent future for themselves and their family.

Ron has had a varied career spanning, Business Banking, Personal Investment Advice and Business Coaching. At one end of the scale He has worked in corporates, where he had a governance role overseeing billions of dollars for investing clients.

027 257 6856 steved@abcbusiness.co.nz

021 0886 3379 ron.schalkwijk@abcbusiness.co.nz

At the other end of the scale he has worked for himself, establishing three businesses of his own. All the time Ron has been driven to create the best possible outcomes for those he is advising or working for.

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Next Steps Detailed information will be provided only to parties who demonstrate a strong and genuine interest and financial capacity to proceed with this acquisition.

Confidentiality is a very high priority for most business owners. They will need to be assured that your interest is genuine before further privileged information is supplied.

The information contained in this profile has been prepared to provide you with an overview of the business to determine its suitability. You will also need to factor in your own circumstances and requirements;

Is it affordable?

Is it in the right location?

Can you run it successfully?

Does it provide the income you need?

After consideration of all the relevant details, you should be in a position to decide whether this business meets your personal criteria and you have the necessary financial resources to complete a sale. Your broker will be able to advise you in this regard and we may also be able to assist with funding if required.

To that end the sale process will involve: 1. Interview with the ABC broker, provision of further information as required/appropriate, under confidentiality agreement.

2. Introduction to the Client and inspection of business premises, if appropriate.

3. Submission and presentation of conditional offers (subject to due diligence) with a deposit payable through ABC. This will include all relevant terms and any conditions that need to be satisfied before you give your final approval. A copy of a draft agreement can be prepared as per your instructions and forwarded to your solicitor as required.

4. Negotiate the sale process and complete all necessary documentation.

5. Conclusion of due diligence by purchasers and their accountants/solicitors.

• Liaise with the lawyers and accountants for both sides as well as the landlord.

• Help to effect the completion of all terms and conditions.

6. Obtain the final sign-off to confirm the contract.

Under no circumstances may prospective purchasers make contact with management, employees, suppliers, agents, or customers without prior consent of ABC who will then seek the Authority of the Client.

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