MiddleGround Capital Announces Intent to Acquire 3D Printing Bureaus

The additive manufacturing (AM) industry is currently experiencing an interesting set of roll-ups related to 3D printing service bureaus. Given the pace of the sector and the number of smaller businesses in the space, we may expect the trend to continue for some time. Behind the wheel of much of this consolidation is private equity, with investment vehicles seeing an opportunity to consolidate a fragmented market in the midst of a temporary economic downshift for the industry.

The latest such firm to set its eyes on digital manufacturing services is MiddleGround Capital. With a focus on medium-sized businesses in the U.S. and North America, MiddleGround has begun its foray into the space with the purchase of Megatech, a Canadian CNC provider based in Montreal. The investment firm alerted us to the fact that this was just its entry point into digital manufacturing and that MiddleGround had its sights set on 3D printing next. We spoke to MiddleGround Director Marten Sjoquist to learn more.

Based in Lexington, Kentucky with offices in New York and Amsterdam, MiddleGround is a comparatively new private equity firm established about five years ago. The company targets businesses with revenue of over $75 million, providing equity investments of between $20 million and $350 million, and operating in transactions of over $500 million. One of the unique features that sets MiddleGround apart from many of the private equity groups driving the service bureau consolidation in AM is the fact that its leadership team comes from the manufacturing world.

“Two of our three founding partners actually started their careers at Toyota, including our managing partner, John Stewart, who started his career on the night shift as an hourly worker at Toyota’s Georgetown, Kentucky plant, putting bumpers on Toyota Camrys before working his way up through the Toyota organization,” Sjoquist said. “So, manufacturing and that kind of blue collar attitude is in our DNA. It’s a big part of our identity and strategy. We tend to be straightforward and transparent when dealing with sellers and our management teams and with each other. When we’re buying businesses, we do what we say we’re going to do. We stand behind our bids and those are our values that are really important to us and something that we take very seriously.”

MiddleGround also features a large in-house operations team who all have experience in industry and serve as instrumental resources for the management teams of the firm’s our portfolio companies. They work hand in hand with management teams to implement specific value creation projects. Sjoquist  listed examples that include improving labor efficiency, managing capital, optimizing supply chains, and executing new capital projects. Rather than rely on debt or financial engineering to generate returns, MiddleGround aims to perform operational improvements to the businesses that it acquires.

As the company has invested in the industrial sector, it also conducts thematic investing, including industry 4.0 and digital manufacturing. In addition to the general benefits of 3D printing, ranging from part complexity to shorter product development cycles and mass customization, Sjoquist highlighted the role that AM will have in supply chain resilience as a key factor for the company’s interest in the technology.

“As longtime investors in the industrial sector, we’re excited about the advancements being made in this space. We think that embracing digital and additive technologies is critical to helping keep our domestic manufacturing base competitive internationally—especially, when you look at what’s happened in the last few years in light of the supply chain issues that we’ve all been experiencing. Making supply chains shorter and more flexible is absolutely critical in our view. We think that additive manufacturing can really help with that,” Sjoquist said. “When you look at like the defense sector as an example, they’re always looking for domestic suppliers. Our casting industry has moved offshore to China. And when you look at some of the advancements being made in in metal printing, we see good demand and see that sector embracing the technology.”

A CNC part made by Megatech. Image courtesy of Megatech.

Altogether, this has driven MiddleGround to build a platform dedicated to high complexity, low volume, high mix manufacturing services for technologically advanced and secularly growing and resilient end markets. The first piece of this platform is Megatech, which produces complex, low-volume components for such sectors optics and photonics robotics, medical, non-destructive testing, and aerospace. To do so, the company uses a combination of advanced software programs, in-house machine programming expertise, and state-of-the-art equipment. However, Megatech is only just the beginning.

“We’re looking to continue to be very acquisitive to, to build a more diversified platform around Megatech. We’re going to be looking at making more add-on acquisitions as to build out the platform that bring new advanced manufacturing technologies into the business so that we can be a full service provider to our customers and provide complex parts, regardless of which material or manufacturing technology is required to make that part. We view additive to be a big part of that,” Sjoquist said. “We think there are benefits to having a full suite of advanced services and technologies, across CNC machining, precision sheet metal fabrication, additive manufacturing, injection molding, urethane casting, and other technologies.”

There are potential benefits to blending a CNC business like Megatech with newer 3D printing bureaus. Sjoquist pointed out that established subtractive manufacturing firms have solid industrial customer relationships due to their longevity, while 3D printing companies may have strong digital platforms without the same level of relationships. Just as subtractive and additive production are complementary at the physical level, so too can they be at the business level.

Of the private equity firms in the market performing these types of consolidations, MiddleGround is definitely unique in a number of ways: from Sjoquist’s candid discussion of the topic to the manufacturing background of the company’s leadership, as well as MiddleGround’s reliance on operational excellence over debt financing. With such a player in the field, we’re not only witnessing the evolution of AM technology itself, but also the investors interested in that technology. With MiddleGround’s next acquisition, we’re sure to see exactly how the service bureau industry begins to evolve from what we’re used to to a greater number of differentiators across businesses.