On today’s show, Lloyd Graff and I are discussing our observations of the machining industry in 2022 and our instincts about where the industry is headed in the coming year.
As used machinery dealers at Graff-Pinkert, we saw trends in 2022 such as reshoring, the resurgence of old school cam screw machines, and a growing number of machining businesses that soon may be for sale.
We think these trends will accelerate in 2023, and we hope this conversation will uncover some opportunities that your business can take advantage of in the coming year.
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Noah Graff: So dad, when you think of 2022, what’s the first thing that comes to mind?
Lloyd Graff: I think of recovery from the pandemic. I think of change. I think of opportunity. I think it was a continuation of the last half of 2021 when companies and people regained their confidence, decided they were in a mood to make changes. And we were in a position to help them make change
Noah: Which machine did Graff-Pinkert sell the most in 2022? And did it surprise you?
Lloyd Graff: Oh, absolutely. In the past two years, we’ve sold a tremendous number of Davenport screw machines. We’ve probably sold a hundred Davenports.
Noah: It’s just crazy. Just for people’s reference, the Davenport machine has the same design as it had 80 years ago. It is also known as the machine that won World War II. It’s a five spindle, multi-spindle. It still is one of the fastest machines around. It can produce a part in one second.
So dad, what does it mean that the Davenport was the machine that we sold the most of.
Lloyd: It means the kind of work people run on Davenports came back to the United States from China. Work that did not demand impeccable tolerances that you might get on a CNC multi-spindle or a Swiss. It did not require as rugged a machine as a National Acme screw machine. There are a lot of Davenport plants in Mexico where machinists and Davenport operators are obtainable and trainable.
Noah: Why don’t we discuss one deal we did last year that was very interesting. It was actually a company that was running Davenports.
Lloyd: In this particular deal, the company had been in business since 1945.
They were able to pound out a nice living for the family by running this business based on running brass and a little bit of aluminum through Davenport screw machines for a variety of clients.
The owners got up in age, and the key owner, who still was very active in the business, was in his eighties. He and his family decided that if they could sell the real estate, which happened to be extremely valuable, that it was the time to get out before they could no longer run the business. It turned out that this building was on 10 acres of land between Tampa and Clearwater, Florida, and it was on the highway. They got an awful lot of money for the property.
The new owner of the building said they had to be out by the end of the month. So they called Graff-Pinkert because they had seen our advertising way back in the Automatic Machining days. They called us, and we said, “I think we can help you.”
Initially Graff-Pinkert offered to buy all of the equipment and they would hold on to the intellectual property, the customer list, and knowledge on how to run the parts. But ultimately they came back to us and said, “are you sure you don’t want to buy the intellectual property also?” And we ultimately did pay a significant amount of money to also get customer list and the intellectual property.
Then we found somebody to buy it. And it turned out that their interest was much greater in the intellectual property than the Davenports. Although they did take Davenports and shipped about 60% of them to Mexico.
It made us think that there is an awful lot of intellectual property buried in these old machining businesses, and in most cases it’ll never be realized because they get to a certain point and they say, the hell with it, I’m just gonna liquidate the shop. Or they get tired. The workers ultimately go away because they see better opportunities elsewhere.
Noah: Graft-Pinkert is getting more into buying and selling companies, and we’re going to talk about that more in the podcast as time goes on. One of the things we’ve seen that seems significant in 2023 is that Baby Boomers are retiring. Other people are looking to consolidate and grow, so it seems like a very interesting opportunity for us.
Lloyd: Another thing is that it is very hard for small businesses to acquire new customers as opposed to bigger businesses. It’s easier for big businesses because other big businesses want to deal with big businesses, and they have the wherewithal to have salespeople and may use social media in ways that are effective.
It’s also difficult for small businesses being run by people in their forties and thirties and twenties who have big ambitions but really do not know where in the world to find new customers. They may have access to capital, they know how to run the machines, they’re good organizers and they have big ambitions.
What do they do? They look for possible acquisitions to acquire new customers without the effort, without the long lead time, and with the intellectual property, the knowledge of how to make the parts for potential clients.
Perhaps they put it on much more advanced machinery or maybe even find sources out of the country—Mexico, Taiwan, India, who knows where. It’s a fascinating opportunity and people are waking up to it. So it’s an opportunity for us to lend our knowledge, and in some cases to both the sellers and the buyers.
Question: What areas of your business seem the strongest in 2023?