Experienced manufacturing business acquirers understand that acquisition is often superior and faster than organic growth.
Acquisition beats organic growth because it can provide:
- Instant entrance into new customers, including large OEMs for which it is difficult to become a new vendor
- Entrance into new market segments not yet being served by the acquirer
- Gain new products and patents
- Help in bridging the skills gap by gaining employees of the acquired entity
- Increased revenue and cash flow
Experienced buyers understand all of the above, which is why they often seek to accelerate the benefits by acquiring larger companies.
But when buying a manufacturing company, bigger isn’t always better.
To make this point, here’s a real-life story of one of our past clients and how they beat much larger companies in their sector and attracted investment from some of the largest jet engine manufacturers in the world.
Background:
Companies in need of highly complex molds for use in Aerospace and other industries are facing severe problems related to capacity and capability. These include:
- Production time of 25 weeks or longer
- Inability to quote fugitives or one-sided coupons
- Inability to mold water solubles
- Inability to think outside traditional methods when complexity and speed are needed
This isn’t just a problem in aerospace or gas turbine manufacturing; it’s applicable to every other industry needing highly complex geometries.
However, not every company has 25-week lead times. If you think quicker means less quality, think again. My client company was a molder doing what others said was impossible. Through innovative and proprietary processes, they were creating a paradigm shift in the creation of highly complex molds.
Here’s what a paradigm shift looks like:
- A customer was taking 6-8 hours in part creation, but this company made a better quality part in 3 minutes flat through their new proprietary process. This process will save that customer hundreds of millions of dollars in the next few years.
- Historically acceptable industry mold yields sat at about 30-35%, but this company pushes 90%.
- A customer gets several quotes for the same project. The competition quotes a 25+ week delivery. This company quotes the project in 12 weeks and hand delivers the project to the customer in another state in 8 weeks. They then quote and deliver a second new project while the competition is still working on the first.
This is why when buying a manufacturing company, bigger isn’t always better.
How larger companies stumble, allowing smaller entrepreneurial competitors to beat them.
- Smaller companies are more nimble and can respond with speed
- Larger companies have layers of management and approval requirements before they can deeply address the needs of a niche market
- Larger companies have costly infrastructure that affects not just timing, but price
- The management within larger companies are often too invested in how they’ve always done things instead of looking for new innovation
Even if a larger company is the creator of the new innovation, they don’t always recognize how it will change their industry and don’t act on it quickly enough. If you don’t think so, consider Kodak.
What I am NOT advocating for is manufacturing business acquirers to consider companies that don’t have standard operating procedures, proper financial reporting and the basics of good business practice. What I am offering for consideration is that some larger companies hide behind their SOPs and tracking systems to protect their historic way of doing business, even if they’re losing business as a result. It’s often years before they realize this and, in some cases, too late to do anything about it. Sometimes a smaller manufacturer is kicking the ass of the larger business you’re trying to acquire. Keep an open mind, and don’t always think that bigger is better.
You can view the entire story of the client we described above HERE. It was an incredibly fun and challenging project to work on, with competing shareholder interests. We were able to achieve the goals of each shareholder. If you are in the Investment Casting Tooling industry or involved in the production of Ceramic Cores, you’ll definitely want to take a look at this and consider how this company won.