Metal Fabricating Business Transitions: What Makes a Company Stand Out for Potential Investment Opportunities?
After years of watching HGTV, we all have a sense of what can add value to a single-family home that ultimately will hit the market. Spruce up the curb appeal. Modernize the kitchen. Hit the walls with some new paint. It’s not too complicated.
But can the same be said for a metal fabricating business? The changes aren’t as simple, but they are possible with the right plan and commitment.
A Golden Opportunity for Small Manufacturing Companies in Southern California
Hundreds of small business owners are finding this out as they look to leave the chaos of metal fabricating and retire to a quieter lifestyle. Jules Brenner founded Industrial Succession Group (ISG) in 2020 with the intent of purchasing small manufacturing companies in Southern California from owners looking to make a transition out of the business.
The Power of Acquisitions: Industrial Succession Group’s Success Stories
In the months since the purchase, ISG has helped ASM to refocus on its core market, producing metal parts for the local construction and infrastructure projects, and formalize its systems. ISG acquired Pendarvis Manufacturing, also in Anaheim, Calif., in 2023 and relaunched it as Pen Manufacturing later in the year. Pen Manufacturing fabricates metal parts for the many original equipment manufacturers in the area.
What Makes a Metal Fabricating Business Attractive to Potential Buyers?
Meanwhile, ISG continues to look for companies, but not just any manufacturing operations. Like any other prudent investor, Brenner said his company looks for certain traits in a firm that show it can thrive with the right investments.
- Gross Margins: The first thing any likely buyer of a business will want to know is what companies make up the customer base.
- Customer Diversity: A shop that has two or three customers making up a large majority of its revenue is not ideal.
- Company Leadership: When a customer buys a good or service from a company, someone guides that relationship.
- Segment Specialization: Although Pen Manufacturing makes parts for various OEMs, it has a very large presence in some small segments.
- Internal Infrastructure: Changes to the front office or shop floor can make transitions a little trickier as well, but they can be managed with the right planning and timely decision-making.
Forward Thinking: The Key to a Successful Sale
As part of its acquisition strategy, ISG focuses on companies that have annual revenues from $1 million to $10 million. That’s typically indicative of a company that has a solid business base but might have room to scale with the implementation of workflow efficiencies and the guidance of leaders with expertise in growing with current customers and cultivating new ones.
Brenner added these types of companies are attractive because they often don’t have the budget to hire people that might take on some traditional roles of company owners, like sales, estimating, and project management. At these companies, the owners literally work in the business instead of on the business because they feel the finances prevent any other scenario.
ISG believes it can deliver value to these types of companies. But this normally can’t happen if the owner is looking to turn in his own two-weeks’ notice after agreeing to sell a company.
That’s why a company needs to be thinking ahead about a possible sale, Brenner said. Anything that can make the business more valuable and make a transition to new ownership easier takes time to develop. It’s not as simple as putting out the for sale sign in front of the building.
Analyst comment
Positive news: Industrial Succession Group (ISG) is purchasing small manufacturing companies in Southern California, helping them refocus and formalize their operations. ISG looks for certain traits in a business to ensure it can thrive with the right investments. Companies with annual revenues of $1-10 million are attractive to ISG as they have room to scale and often lack the budget for certain roles. Thinking ahead and developing the business’s value can make a transition to new ownership easier. Market outlook: ISG’s acquisition strategy presents potential investment opportunities for small manufacturing companies in Southern California.
