Made up of a team of experienced production executives, CORE Industrial Partners is using its large bag of money to bring consolidation and capital to small-to-medium-sized businesses in manufacturing, building a powerhouse in the process. CORE has already bought 3DXTECH, FATHOM (NYSE: FATH), Prototek, and RE3DTECH. Now, the company has announced the purchase of Stanfordville Machining & Manufacturing.
Stanfordville will be added to the RE3DTECH+GoProto part of CORE’s business, managed by a different team than FATHOM, which itself boasts 12 different service bureau locations. Stanfordville is a Poughkeepsie, New York-based CNC shop with AS9100- and ISO 9001:2008 certification. It produces metal and polymer parts for the medical, defense, aerospace, defense, and semiconductor industries.
“The acquisition of Stanfordville is the latest example of CORE’s demonstrated track record of partnering with multi-generation family-owned businesses,” said Matthew Puglisi, a CORE Partner. “We are excited to work with the Johnsen family to build upon the excellent reputation Stanfordville has garnered over decades of providing high-quality precision manufacturing services.”
“Stanfordville brings highly complementary precision manufacturing technologies and geographic presence to the RE3DTECH platform that will enable us to better serve our existing customers,” stated Rock Lambert, Operating Partner at CORE and Chairman of RE3DTECH. “Further, we look forward to offering more comprehensive manufacturing capabilities, including additive manufacturing, to Stanfordville’s customer base.”
“Since Stanfordville’s inception nearly a half-century ago, we have differentiated ourselves by quickly and consistently delivering quality products for mission-critical applications. We’re excited to partner with CORE and continue to expand our family’s legacy in the next phase of Stanfordville’s growth as a part of the RE3DTECH platform,” said Neal Johnsen of Stanfordvile.
CORE is really doing a lot with the $700 million with which it has been entrusted. The company is essentially scouring the U.S. for a generation of solid manufacturing businesses that are doing well but don’t really have exits. It’s worth noting that American Industrial Partners is doing the same thing, with ADDMAN Group now on its fifth acquisition.
For these regional businesses, there is no natural partner to take them over. Family capital stays in the firms, as founders or family members leave them without having anyone to take them over. These are often strong regional companies, sometimes propped up by loans from banks. They demonstrate solid performance and a loyal customer base, but there isn’t a national CNC company buying them all, nor is their a way for them to tap more capital to escape their regional comfort zones. These are businesses with dirt under their nails who may not be attractive to digital and code-focused investors. Nevertheless, these firms represent a disproportionate part of the U.S. industrial base.
The opportunity is also a very lucrative one. With no other clear buyers, valuations are comparatively low. And the businesses that make sense supply the defense, medical, and aerospace sectors. In these businesses, outsourcing pressure by China is less to nonexistent because they are not able to take this kind of business overseas.
Additionally, relationships in these firms are long and suppliers are often entrenched. Even if many competitors are saying that they can perform a job for cheaper, an implant manufacturer may not even care. The right kind of clients will just want good quality, day in day out, and will be willing to pay for that.
Through a contraction in the U.S. industrial base, a lot of skills and capacity have been lost. Reshoring, supply chain worries and geopolitical concerns about China mean that the U.S. wants to invest in its manufacturing ability and capacity again. The U.S. government will spend billions to rebuild capability, especially in defense, and make sure that America´s military products can be made in the country itself.
At the same time a new nationalism espousing ¨made in USA¨ is on the rise. Counties, cities and states are offering significant tax and other incentives to bring jobs home. In additive, we can see a lot of fragmentation, with regional players that likely cannot make money on the equipment that they have. At the same time, new machines with eight, 10, and 12 lasers are raising the ticket that people have to pay to get the most productive devices. Post-processing equipment, new automation tools and better quality assurance will also require a lot of cash. This means that, in the next few years, new CAPEX will drive lower part costs, profitability, and growth.
I think that this move to consolidate U.S. manufacturing is an absolute gem of an investment. The riches that await someone who can combine high-quality, well-managed manufacturing services will be considerable. Those riches will also be available to the winner in the long-term, as there is not enough economic and investment activity in the space at the moment.
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