Small Machine Shop

WE HAVE HELPED OWNERS LIKE YOU

Small Machine Shop

The Situation

The owner of a small machine shop was acutely aware that his business and industry had changed dramatically from when he first founded the company 37 years ago. He noted the most prominent change involved an increasing lack of customer loyalty even though the company prided itself on providing exceptional customer service. He experienced growing pressures to provide price reductions, just-in-time deliveries, and extended payment terms, all of which worked to squeeze his profit margin dry. At the same time, it was becoming increasingly more challenging to find affordable skilled labor to keep up with these demands.

In addition, over time, he had fallen behind on equipment, systems, and facilities upgrades. Without a clear succession plan, our client decided that the best strategy would be to search for a strategic buyer, and he hired Next Point to run their divestiture process.

The Process

The logical buyer would be a strategic industry player with the ability to leverage the company’s attributes to improve overall financial performance. Strategic Buyers are often looking to break into new markets and industries. It is often easier to buy a customer list than to develop customers organically in new sectors such as aerospace and medical. Strategic buyers may have already made investments in new equipment and technology; their strategy might be to buy a book of business to add customers with known sales and gross margins to help support their debt service.

A strategic buyer could potentially make the new parts on their updated production equipment with a shorter setup time and faster production times, allowing the buyer to achieve a quicker return on investment and improve the gross margin. Many strategic buyers desire to expand their existing capacity by acquiring skilled labor and management to help them meet their customers’ demands. Some buyers need to expand their service offering for their existing customers who may prefer “one-stop-shopping.” For example, a metal fabrication company may buy a CNC company to compete better.

With a strategic buyer in mind, we built a “Pitch Deck” describing our client’s attributes, financial history, backlog, organizational structure, production capabilities, equipment list, industries serviced, customer types and length, and strength of customer relationships.

Filtering Next Point’s proprietary database of over 24,000 companies in the metal manufacturing industry to include regional, national, and Canadian strategic buyers with revenues at least three times greater than our client’s income produced the following results:

  • Over 12,000 strategic buyers in the USA in Canada.
  • Three hundred forty serial strategic buyers with a history of multiple transactions in the metal contract manufacturing space.
  • Thirty-five regional strategic buyers within a 50-mile radius of our client that were actively looking for new acquisitions.

Marketing the company required casting a wide net to find the right buyer. We aim to run a time-sensitive process, asking interested buyers to submit a letter of Intent by a deadline so that we have the opportunity to compare offers.

The Turning Point

Over forty-five companies signed NDA’s and reviewed the information on our client, and we ultimately received six letters of intent. Next Point helped our client to analyze each offer to select the most attractive scenario for his retirement goals.

Our client sold the company to an industry consolidator and was able to retire after a brief transition period.

Services Performed

  • Management Buy-Out
Machine Shop Management Buy-Out - Next Point LLC