Executive Summary
My name is Ryan Olson. I am seeking financing for the purchase of a tool and die company near Fort Wayne, Indiana. The company operates out of a 15,000 sq ft facility 20 miles south of Fort Wayne. The company does approximately $1.6M in revenue designing and producing specialty precision tooling and providing machining services. The industries serviced include, but are not limited to, Medical Device, Automation, Automotive, Electric Motor, Agriculture and Aerospace. It is not just another machine shop, the company has an established reputation as being a premier supplier in the industry. One that welcomes projects requiring the tightest of tolerances with confidence.
For three decades it has been the company's mission to provide a superior product through consistently giving thought to the intricate details. Keeping the customer’s best interests in mind while delivering an exact and aesthetically pleasing product sets the business apart from their competition. The statement, “Customer satisfaction is second only to the production of a quality product.”, has been integral to the success of the company. After a few meetings with owners, it became clear to me I would pursue acquiring the company. The shop is immaculate, and operations are organized with great flow. The company exudes excellence and is positioned for a bright future.
Although I have thirteen years of manufacturing experience, I felt I needed a better understanding to determine if I could add value and present solutions to the tool and die industry. I have spent the last seven months contacting shop owners and employees around the Fort Wayne, IN area. I listened to stories of success, failure, and everything in between. The industry is fragmented, it needs a paradigm shift and an injection of innovation and enthusiasm. Too often in my conversations I heard “that’s the way we’ve always done it”. I feel with my experience I am more than qualified to enter this industry. My desire to be part of the revitalization of American manufacturing will result in relentless efforts to push the American industry forward. There is no room for complacency, and although in business it is eat or be eaten, there is a need for some collaboration and to force each other to innovate. The U.S. needs domestic manufacturing for many obvious reasons.
The owners have both committed to staying on board as employees to assist in growing the company. With their industry expertise and my manufacturing experience we believe it is a perfect recipe for taking advantage of the many opportunities in Fort Wayne and the Midwest.
Company Description
The company was not for sale when I contacted the owners in September 2020 about purchasing the business. They are not retirement age, but they have seen other tool and die shops go to auction when ownership did not have a succession plan. They did not want to see their business go down that path so they were open to discussion. One owner's son had been part of the succession plan but had recently decided to pursue other business ventures. They decided to take the meeting with me and give a chance for something to develop.
The 70% majority owner started the company in 1992. His brother-in-law joined him 18 months later to buy in at 30% ownership. Since then, the company has been re-investing back into the business, purchasing some of the latest technology and retaining employees who help move the company forward. The company is debt free, recently purchased a brand-new machine and is contemplating adding an additional 10,000 sq. ft. onto the building due to an increase in demand. January 2021 was a record month for the company. Both new customers and existing accounts are responsible for the increase in sales during the last quarter of 2020 and beginning of 2021.
SWOT Analysis
Strengths
- A team that understands the need for attention to detail and an aesthetically pleasing delivered product.
- Their reputation is established.
- A diversified customer base of 20% Medical, 11% Automotive, and the remaining 39% is split between Agriculture, Food, Furniture, Recreation and Plastics.
- Offers a full-time inspection department to ensure each part is manufactured to print specifications.
Weaknesses
- Currently at or above capacity and the bulk of the plan of action is to purchase more machines rather than open a 2nd and/or 3rd shift and use the same machines to increase revenue.
- Offers a full-time inspection department. Although I noted this in the strengths above, I also see it as a weakness in the sense that there is an opportunity to implement full automation into this space and decrease labor costs.
- There is a large demand for center-less OD grinding which they do not offer. I am an expert in this field so we will enter that market for more diversification.
- The website which I talk about below in Sales and Marketing.
Opportunities
The Fort Wayne Revitalization Program has been successfully attracting businesses to the city of Fort Wayne for some time now. Downtown is vibrant with a variety of businesses. Small business, as well as companies who are giants in their industries, have invested in Fort Wayne’s future.
- Medical
- Food and Beverage
- Auto
- Automation
- Proprietary products
- Defense
- OD grinding
- Abrasives
- Communications
- Firearms
Market Analysis
Introduction
It is no secret that the last 30 years have wreaked havoc on the United States Tool and Die industry. Over the years, cheap labor in countries like Japan, Taiwan and China have won the business of companies in the U.S. looking to decrease their costs. The reality is that companies manufacturing in the U.S. do not want to buy from suppliers outside of the country. They would rather be able to meet with and solve problems alongside suppliers here in the states. Historically, Honda America has been known to source in the states for those reasons. We must make sourcing domestically attractive again through innovation.
Automotive
Inexpensive labor in other countries and a recent pivot in the way the auto industry launches new vehicle models has changed the automotive space. The North American market for automotive alone in 2017 was $10 billion. Projections show the North American automotive market drop to $7 billion in 2021 and 2022. These manufacturers are leaning more towards reductive designs. An example would be the dash of vehicles will have fewer knobs and controls as time goes on. However, looking ahead there are opportunities to enter the “new” automotive era driven by the electrification of our automobiles. By 2025 there will be 23 OEM auto manufacturers producing vehicles in North America. Included in those are some of the most exciting and innovative. Tesla, Rivian, Nikola, Lucid and Workhorse to name a few. The market will see a benefit from the electric and autonomous vehicles through battery componentry, ports and plugs, and implementation of rapidly changing technology. Locally we have companies like BF Goodrich, GM, Thor, TI Automotive, REV, Dexter Axle, Tenneco and Dana in the automotive market. Their products range from tires, fuel storage and delivery systems to RVs, trailers, glass and axels. Fort Wayne ranks 3rd nationally in vehicle manufacturing which makes up more than 20% of the manufacturing employment compared to 13% for the nation.
Healthcare
Medical is must in the Midwest, specifically in Northern Indiana. A friend of mine is a medical device sales representative for DePuy Synthes and will be advising us in this industry. The area has been named the “Orthopedic Capital of the World”. Medical device companies in Northern Indiana control nearly 40% of the worldwide orthopedic market, which equates to approximately $19 billion. They are responsible for 46% of the $7 billion worldwide hip market, 49% of the $9 billion worldwide knee market and 48% of the $9 billion worldwide spine market. Additive manufacturing in the form of 3D titanium printing is the future of the medical market and medical is key for continued growth and success. The company has been increasing their medical portfolio in recent years and we will remain focused on gaining more market share.
Defense
This region is home to some of the world’s largest defense contractors, including L3 Harris Corporation, HUPP, Raytheon, BAE Systems and Riverside Manufacturing. The 122nd Indiana Air National Guard Blacksnakes Fighter Wing is housed at a base near the Fort Wayne International Airport. Although the defense tooling usually has a longer life cycle there is still a large market to capture in this part of the country.
Summary
There are approximately 100,000 people in the Midwest alone who are making tooling. It is estimated that there are 500 Tool and Die companies in Michigan, Ohio, Illinois and Indiana. Many of them being 3rd and 4th generation shops with less than $20 million in annual revenue. In my conversations with those who would talk to me I was surprised by what I found. I heard anything from having a total of 15 customers to 60% of one shop’s revenue coming from one customer. One scenario I was taken aback by was a small shop north of Fort Wayne that lost its EDM operator to a higher paying competitor. That business ultimately began outsourcing all EDM work and let their two EDM machines sit idle. The lack of skilled labor is one of the primary concerns in the industry. Investing in automation and technology is necessary to offset the rising costs of labor and turn the manufacturing of tooling into a process rather than an art. Total life cycle cost of tooling needs to be understood, then communicate to and reviewed with the customer.
Competition
Although there are many underperforming Tool and Die companies, C&A Tool and X-Y Tool and Die are two competitors that run efficient and effective operations in Northern Indiana.
C&A Tool is a $100 million company and will be the largest competitor in the immediate area. Minebea Mitsumi, a Japanese company, acquired C&A Tool in 2017 to expand their global presence. Minebea Mitsumi holds 51% and the Development Bank of Japan holds 49%. Typically, Japanese companies are invested in the long term when they purchase U.S. businesses, and this is no exception. I fully expect Minebea Mitsumi to continue their quest to expand in the U.S. There are limited domestic options for growth in Japan and Chinese buyers are under increasing scrutiny, so the U.S. is seeing an increase in Japanese mergers and acquisitions. I have a working and personal relationship with multiple associates of C&A Tool, so I do know details about the transaction and the current state of the company. Japanese companies also usually make one of two moves. They either bring a team of people in to evaluate and execute large scale change, or they change nothing. Minebea changed nothing after the deal closed. They sent one executive in from Japan who spent a small amount of time at their two locations for evaluation. Minebea Mitsumi was most interested in C&A Tool’s additive printer technology. C&A Tool’s greatest advantages are their global reach and head start on additive printing.
X-Y Tool and Die is a $20 million company. Although much smaller than C&A Tool itself, it is part of Khorporate Holdings, a corporation owned by the Khorshid family. Established in the Fort Wayne area, Khorporate Holdings owns and operates 8 manufacturing companies supplemental and complimentary to one another. The extent of diversification among Khorporate Holdings offers many advantages. There are several C&A Tool employees who started their careers at X-Y Tool and Die who feel X-Y Tool and Die is fundamentally a better company. This aligns with data that shows tool and die companies over $50 million in revenue become hard to service.
The advantages Intri-Cut has over these two competitors are timing and the current size of the company. Technology is rapidly changing and will continue to do so. Many of the machines C&A Tool and X-Y Tool and Die possess are going to become obsolete or no longer be necessary. Machines are going to do more with less and not require skilled labor to program or function. Intri-Cut will not need the same level of real estate or workforce that C&A Tool or X-Y Tool and Die required to reach their current revenues.
Organization and Management
Ryan Olson
Initially I will observe and evaluate with no intentions of making early changes. I will learn the process of how they are currently operating internally and accompany the president on any sales prospecting or customer visits. During my evaluation I will begin to prioritize a list of areas where my expertise can be best utilized.
- 13 years of manufacturing experience in production, maintenance and management.
- Experience in building a 400,000 sq ft manufacturing facility. Then taking on the responsibility of equipping the facility with machines and training high performance teams.
- Expert in running CNC centerless OD grinding machines.
- Knowledge in Fanuc, Rockwell and Siemens automation software.
- Certified Industrial Technician (electrical and mechanical).
- Ladder logic programmer
- Experience in metallurgy.
- Hundreds of hours of negotiation experience.
- Responsible for $100 million revenue stream at current employer.
Previous Owner #1
He will remain as the President and would like to stay with the company for years to come. He has expressed to me in our conversations that he has always had the desire to grow the business at a faster pace. He was unable find someone who possessed the necessary skills to take on some of the responsibility he held, which would have allowed him to spend more time on sales. With my experience and vested interest in the company, he feels he can spend a significant amount of his time on sales. He is confident in his ability to grow organic sales and already has prospects in mind.
Previous Owner #2
He has his hands in almost every aspect of the business. He spends most of his time in the operations and maintenance. He leads by example and it is clear the employees follow that lead. He has already begun the movement toward a more automated shop, frequently setting up machines to run all night long while the shop is empty. He would like to stay with the company for 15 years or longer.
Advisor #1
Currently employed by DePuy Synthes. He will initially be an advisor to the company in the medical space. His experience and connections within the market will be helpful in giving direction to expanding Intri-Cut’s market share.
Advisor #2
Currently employed in the Tool and Die industry, he is willing to lend his experience and contacts to assist in Intri-Cut’s growth. His decades of experience in Tool and Die compliment the current owners, as well as bring a different perspective to the table.
Sales and Marketing
As the saying goes, “If you don’t understand people, you don’t understand business.”
Details will still need to be discussed but one owner has offered to go on a commission-based salary and focus on sales. I will oversee this from all aspects. In the Industrial Market, often the smaller businesses do not budget for marketing. That is not the plan for this business, when people think Tool and Die in the Fort Wayne area, they will think of us.
Things we will address:
Website - Right now the website is just a validation of what a typical salesperson would say. We will need to make it a better tool for educating a potential buyer. They are likely performing most or all their research on the company from the website. In today’s world people like to get what they want without being required to talk to someone over the phone. We need to have clear and concise information which answers questions prospective buyers will have when researching suppliers. The word “We” will be largely removed from the website. People are interested in how they can be helped rather than reading a website that boasts about a company. People are mostly motivated by self-interest.
Search Engine Optimization – The company does not appear in searches when I search any of the keywords one would use while looking for services they offer. Using specific phrases and keywords will be another focus of ours, possibly even paid ads.
Content Marketing – We will get the name out on social media by producing articles that further show we can help clients and create brand awareness. Although email is still heavily relied upon it is slowly fading and video communication is the way of the future. We will create content designed to be engaging and released in small clips. Although nearly everyone is engaging in social media there are ways to do it that grab the target audience without being too overbearing.
We will communicate the importance of the actual life cycle cost of tooling to current and prospective customers. For example: We do not want a new buyer of an existing customer to decide to take their business elsewhere because they are trying to make a name for themselves by cutting costs. Even though the purchase order cost might be cheaper there are many variables that need to be accounted for when calculating the total life cycle cost of tooling.
Being on the purchasing end of hundreds of meetings I have an understanding and appreciation for the time someone will be willing to take out of their day to meet with us. When we are successful in landing a meeting, we better make sure we are prepared. The sales team will spend the necessary time doing in depth research of the prospects so we can present them with a solution to their problems before they tell us what their problems are. A generalized sales pitch is not good enough. Each meeting needs to be tailored to the potential customer’s needs.
It is relatively easy to figure out what type of products a potential customer may be purchasing from competition. At times we will simply send a sample of a product we provide to the necessary person, or persons, with a suggestion of a GTO (guaranteed trial order).
There are plenty of studies that show an increase in the price of a product increases demand by a larger percentage than a decrease in price. People will do more to avoid loss than to gain pleasure. A result of this tendency is that people are not likely to change what they are doing if there are no issues. I have experienced this firsthand with one my current customers, John Deere. We presented Deere with some cost saving measures that would require a change in material grade of the steel. The steel grade had been tested and proven in the industry for years, but Deere was unwilling to change, and the fear of loss overcame the satisfaction of saving money.
This goes back to the website but a little more in depth. In our on-demand society, we also need to look at how we can make it almost effortless to quote and place an order. I was told over and over that in the Tool and Die industry the quoting process cannot be automated, and you must have years of experience in the industry to perfect the quoting process. We will work towards developing software that will read a print and generate a quote in minutes with minimal input from the client.
Funding Request
The owners had an appraisal performed in 2018 which valued the business and real estate at $4.2M, They are asking $4.8M.
Real Estate - $800,000
Asking - $4,000,000 for the business. I am willing to offer $3,700,000, which is 6.2 x the average EBITDA for 2017-2020
Machines (pre dep.)- $2,652,603
That puts a value on the brand of just over $1,000,000.
I believe a 6.2 EBITDA multiple is a fair number. One owner has also expressed interest in investing his own money into growth down the road. If the due diligence process finds that the company is not worth their asking price, we will go back to the drawing board.
Looking ahead we will seek to acquire competition. There are just under 40 Tool and Die businesses in a 30-mile radius of Fort Wayne. Many of which have no succession plan and in some cases are barely getting by. Many of these are businesses whose owners are motivated to sell but do not know where to begin that process and rarely make that initial step. This is where we swoop in as the saviors and offer them a low price to get them out of the red. We will roll up the smaller shops in the area, consolidating and reducing overhead. Once the larger competitors begin to feel our presence, we will then have to make the decision to either sell to them or look to acquire.