When Organic Growth in Your Machine Shop Isn’t Enough

By Brent Donaldson, Senior Editor, Modern Machine Shop

Mergers and acquisitions (M&A) among machine shops are in one sense business as usual and in another sense something new. Just like in any other business sector, M&A fluctuations among machine shops are typically driven by economic conditions — conditions such as low interest rates and the availability of “cheap” money; the existence of an economic recovery after a downturn; and favorable stock market conditions that provide capital for M&A activity. What is new is the extent to which acquisitions and consolidation among machine shops seem to be on the rise. As the Baby Boomer generation nears or enters retirement age, many shop owners have no natural successor to turn to. And as machining transitions from regional-focused businesses to shops more and more often serving a national base of customers, small or mid-sized shops often are interested in merging with another company that is better able to manage costly business operations such as accounting or marketing, or able to expand the combined company’s customer base, capacity and product line.

But no matter what the stated reasons are for consolidation among machine shops, the goal is usually the same: to emerge as a company that is bigger and better than the sum of its parts.

When the new leadership at Princeton Tool, which was founded near Cleveland, Ohio in 1997, wanted to expand the business, organic growth was not accomplishing that goal quickly enough. As the company looked into expansion, arguments in favor of acquiring another shop began to grow….

(READ MORE ON MODERN MACHINE SHOP)

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