Swarfcast Ep. 61 – Xometry’s Greg Paulsen on Facilitating a Manufacturing Network

November 15, 2019 • Leave a reply

By Noah Graff

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Today’s podcast centers around a company that provides capacity for machining firms that lack resources to meet clients’ needs.

Our guest is Greg Paulsen, Director of Application Engineering for Xometry. Xometry provides manufacturing on demand using an artificially intelligent quoting system and a manufacturing partner network of over 3,000 companies.

Main points of the interview

(3:00) Greg explains his background in product development working for firms in the additive manufacturing sector. He discusses the his dislike in his previous job of sending out lots of RFQs and then having to wait for responses.

(3:40) Greg explains that Xometry’s purpose is to get rid of the RFQ process for most parts using AI technology. On Xometry’s website a person can submit a 3D CAD file and instantly receive an estimate for price and lead time on a job.

Greg Paulsen of Xometry

(4:12) Greg says that Xometry has a network of manufacturing partners that can provide CNC machining, sheet metal processing, injection molding, as well as 7 different 3D printing processes for over 60 different materials.

(5:05) Greg characterizes Xometry as a storefront that connects work with those that are best able to produce it. It has over 3,000 manufacturing partners, mostly small manufacturers of diverse disciplines. Greg says that the large number of companies in Xometry’s network quoting work enables it to determine what price is “market fair” for a job.

(7:35) Greg says it is easier to quickly determine prices on low volume jobs (1 to 1,000 pieces). He says often large companies such as Bosch use Xometry so they don’t have to worry about producing very small volumes. He says that Xometry can also facilitate high volume jobs, but clients would have to have a more involved consultation with Xometry’s staff to set up the process, rather than using the online quoting system.

(9:30) Greg says Xometry is usually used by companies who are already working at full capacity and then receive unexpected work. He says shops also utilize Xometry when they need to do work that doesn’t fall into their normal areas of expertise.

(11:30) Greg talks about how manufacturing firms can join Xometry’s partner network. He discusses a vetting process in which Xometry pays potential partner manufacturing companies to make a sample part.

(27:50) Greg talks about another service Xometry provides that he calls the Finishing Network. Xometry matches manufacturers with partners that can provide secondary operations, anodizing for example. In these matches the clients can communicate directly with each other, unlike Xometry’s anonymous manufacturing on demand service.

(35:40) Greg talks about Xometry’s supply services. The company can provide manufacturers with raw materials as well as tooling.

(44:50) Greg talks about Xometry’s revenue model. He says it generally inserts around a 20% margin for transactions. Its system finds the delta between the market fair price for manufacturers’ take rates and the market fair price for the customers’ take rates.

Question: What have been your experiences with manufacturing networks like Xometry?

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Auctions and Late Entries

November 13, 2019 • 1 Reply

By Lloyd Graff

The last few days have been fascinating for me as an avid observer of business, politics and sports.

Last week two big auctions in the precision machining space took place, Triumph Manufacturing in Tempe, Arizona, and HN Precision in Rochester, New York. My focus was on Triumph, which Noah attended, but I also listened to HN Precision online. A few observations and generalizations:

Late-model CNC equipment, even if it is slightly flawed, brings strong prices, but a middle-aged CNC loses value abruptly. At Triumph, the marquee piece, a Nakamura WT250II new in 2016 with no Y-axis, brought $225,000 plus the 18% ($40,500) “Buyer’s Premium.” A Studer ID grinder new 2014 brought $180,000 plus the $32,400 Buyer’s Premium. At HN, A51 and A61 Makino horizontal machining centers older than 2010 were well under $100,000 including BP.

Tornos Multi-Spindles at Triumph Precision Auction

The high-production machine tools at Triumph, Tornos and Schutte multi-spindles, brought considerably less than at similar auctions in Europe in recent years. It appears that the weaker worldwide automotive market is affecting those prices. One interesting exception was an 8-spindle 1-5/8” National Acme hitting $70,000 with BP. Acmes may be looked at as dinosaurs, but even dinosaurs have their day. Perhaps so do dinosaur politicians.

* * * * *

Michael Bloomberg finally joined the fray for the Democratic nomination for president. Bloomberg had waited for Joe Biden to make up his mind to run for the office. He had offered huge money to Biden if he ran. He supposedly hates Donald Trump and knows him pretty well as a fellow New Yorker.

Unfortunately, Hunter Biden happened and Joe Biden’s hunt for the presidency became very much in doubt. Bloomberg, eyeing the polls and watching time running out to enter the primaries, decided to cautiously throw his hat in the ring.

Mike Bloomberg is rich enough to finance his own candidacy, but starting a year later than his competition, with Biden apparently staying in the race, is a huge disadvantage, no matter how much money he spends. Bloomberg is a brilliant business guy, a self-made mega-billionaire, in a party that seems increasingly hostile to successful entrepreneurs. He’s big on climate change but does not buy into most of the hard-left agenda of Bernie Sanders or Elizabeth Warren. He has a shadow organization ready to spring to life, but he lacks charisma and fire and Biden’s street smarts as a lifelong politician. If he had started when Joe did he would have a real shot at the nomination. At this date it seems like he is late for the party. Perhaps we are seeing the beginning of a third party which could swing the election. But which way?

* * * * *

The college football game of the year, at least so far, was Alabama vs. LSU last weekend. LSU always loses to Alabama, particularly when the Crimson Tide is at home in Tuscaloosa, but this year Ed Orgeron, the coach of the Tigers, told his kids all week that they had the better team and the better players. He believed it and so did the players because the boys from Baton Rouge finally had the quarterback they had always lacked, a grad student from Ohio State who could rarely get on the field for the Buckeyes.

Joe Burrow? I’ve barely even heard of this kid before, but he is now the leading candidate for the Heisman Trophy, playing for LSU. Burrow was a great prospect coming out of high school in Athens, Ohio. He expected to understudy J.T. Barrett in Columbus and then take over. He was redshirted as a freshman and then backed up Barrett for two years. But OSU also recruited another phenom, Dwayne Haskins, who beat him out in the spring game in 2017 and left Burrow with an interesting decision to make about his athletic career. Burrow had evidently envisioned this possibility early on in his Buckeye career and crammed in enough credits to get a Bachelor’s degree in finance in three years. This made him eligible to transfer to another college team and play immediately like Russell Wilson had done after leaving North Carolina State for one fabulous year at Wisconsin and then an All-Pro career with Seattle in the NFL.

Burrow was bred and groomed for stardom. His grandmother once scored 82 points in one high school basketball game in Mississippi. His dad played for Nebraska and in the NFL and then coached college football for 40 years. Joe went to his first football game when he was five days old.

Last Saturday, playing head to head against Alabama’s All-American quarterback, Tua Tagovailao, today’s version of “the Throwin’ Samoan,” Burrow bested him in a 46-41 shootout. Tua was playing on a gimpy ankle, but played like last year’s Heisman winner, yet Burrow was even better. What a game to watch.

* * * * *

Question: At an auction sale do you prefer to bid online or in person?

Swarfcast Ep. 60 – Alec Mandis, Machining in New Zealand Part 2

November 7, 2019 Comments Off

By Lloyd and Noah Graff

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Today’s podcast is part 2 of an interview we did with Alec Mandis, Chief Executive of Accord Precision, the largest machined component manufacturer in New Zealand. Over the years Accord has strived to set itself apart by developing a diverse group of niche products. One example is a stainless steel diving helmet made from an investment casting which took the company three years of R&D to produce successfully.

Main Points of the Interview

(2:30) Alec talks about the process to produce Accord’s stainless steel diving helmet from an investment casting. He says that five years ago the commercial diving industry needed a more durable helmet than the standard light weight fiberglass ones at the time. Accord spent three years of R&D to bring its helmet to market.

(7:15) Alec talks about why Accord spent so much time and money to develop its stainless steel diving helmet despite it being a low volume product. He says that creating a difficult product like the helmet elevated the company’s capabilities for process controls. Accord became better prepared to produce other difficult or high risk products such as those for the medical device industry. It also demonstrated the company’s abilities to potential customers.

Alec Mandis with diving helmet made by Accord Precision

(11:30) Alec says that Accord has put great emphasis on statistical process control and ISO registration for decades. The company has ISO 13485 medical device accreditation which enabled it to get FDA registration in the United States in six months, which Alec says normally takes companies four or five years to obtain.

(12:50) Alec says his best trait for running his business is his ability to manage people. He says it is essential to communicate with employees and create strong relationships with them. He says it is important to help them when they need it but push them when possible.

(13:50) Alec says the thing he would most like improve upon is a work-life balance in his personal life. He is trying to spend more personal time with family but says it is difficult while running a business. He thinks New Zealand has a pretty balanced work schedule. Accord’s employees work 40 hours a week over a four day work week, but Alec still works five days a week.

(16:55) Alec says that New Zealand’s geographically remote location has spurred the country’s innovation and self-sufficiency. He says the country has the best magnet manufacturer in the world and is a world leader in the production of MRI machines. The country also shines in the agricultural and dairy sectors.

(18:40) Alec explains that the nickname “Kiwi” for a New Zealander comes from the kiwi bird, which is native to the country.

Question: Can a small machining company afford to do extensive R&D?

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Swarfcast Ep. 59 – Alec Mandis on Machining in New Zealand

October 31, 2019 • 2 Replies

By Lloyd and Noah Graff

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Today’s podcast is part 1 of a two part interview with Alec Mandis, Chief Executive of Accord Precision, the largest machined component manufacturer in New Zealand. Accord exports precision products around the world, with 30% going to the United States. Alec described to us what it’s like to run a machine shop in a country of 5 million people, more associated with rugby and sheep than manufacturing. After the interview we started scheming how we could get down there for a sales call.

Main Points

(3:40) Alec gives the history of Accord Precision. The company has around 50 employees. It is based in Auckland, New Zealand, and was started 45 years ago. It is one of the largest machine shops in the country.

(4:10) Alec estimates there are 30 to 40 machine shops in New Zealand, which he says is quite a lot when you consider the country has a population around 5 million people.

(4:45) Alec describes types of products Accord Precision makes. The company produces a wide range of part sizes from a variety of materials including various steels, aluminum, bronze, stainless steel, brass, composites, and plastics. The company has been transitioning over time from automatic screw machines to 4-axis and 5-axis CNC lathes.

(6:35) Alec gives an overview of New Zealand. He says that in recent years New Zealand has become more known around the world. The country’s landscape varies throughout the island. He says a person could ski in the mountains and surf on the ocean in the same day. The country receives 20 million tourists per year.

Alec Mandis

(8:45) Alec discusses New Zealand’s indigenous Māori population and the diverse immigrants in the country from all over the world. He says his shop’s workforce reflects this, with people from South Africa, Europe and Pacific Islands.

(15:45) Alec talks about the Accord’s progression to CNC machining.

(17:15) Alec says that the cost of skilled labor in New Zealand is similar to that in the U.S.

(18:10) Alec says that Accord is able to export to the United States because of its various ISO certifications and it is FDA registered in the U.S. so it can make compliant products for medical companies.

(19:40) Alec talks about the Accord’s origins. Its original business was supplying components to the appliance industry. Later the company diversified, making faucets, and products for the electrical, marine, and medical sectors.

(20:00) Alec talks about growing up in Rhodesia (Zimbabwe). He started a family in South Africa and eventually emmigrated to New Zealand.

(21:30) Alec talks about New Zealand’s rugby team’s custom of doing a traditional Māori dance before games.

(24:25) Alec talks about Accord Precision’s preference for Haas equipment. He said that Haas is the only major CNC machine tool builder that has opened a spares and service center in New Zealand, and it is only a 10 hour flight from New Zealand to Los Angeles. He says that Haas machines may be slightly lesser in quality than DMG or Mazak, but Accord has been able to machine excellent complex components using them.

Question: Are you a fan of Haas machines?

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The Greenland Story

October 30, 2019 • 36 Replies

By Lloyd Graff

What do you do when you go for a brief vacation to the Bay Area to visit family?

Naturally, you study up on the history of Greenland.

Greenland is getting some interest these days. Donald Trump, still a real estate developer at heart, recently tossed out the idea that the United States should buy it from Denmark. Of course, the Danes put a kibosh on the deal, which may mean negotiations have begun.

A recent scholarly article published by Northwestern University geologists has proven that Erik the Red, the Viking who fled Iceland after a murder and conviction in 985, colonized a much more temperate Greenland than was previously thought. It was in the 50° range many months of the year, making it a good place to raise animals, fish, and harvest ivory. About 350 to 400 years later a “little ice age” seemed to discourage many Greenlanders, and they left.

In the last few years, old Norse settlements have been discovered as the climate appears to be becoming more temperate, and real estate developer types are finding renewed interest.

Why this is so interesting today and so disturbing to me in the heart of Silicon Valley, with one of the most benign climates in the world?

It seems like so many folks here are paranoid about “the existential threat of climate change.” Living in the Midwest, climate change is generally a footnote to most political and economic discussions. Even most of the Democratic politicians running for the Presidency in 2020 do not make it a major emphasis, probably because their polling data indicates it does not move the needle in the crucial early primary states.

But in California, among the intelligentsia of Silicon Valley and malleable young people who hear the voice of doom about the planet burning up in their lifetime which is expounded almost every day in school and their media, it is a real fear. They do not know that Greenland was mild 1,000 years ago, then got very cold, and now is getting more tolerable again. They don’t know what they don’t know.

I do believe the climate on Earth is getting slightly warmer now, but it does not worry me. People are very smart, and a capitalist economy will adapt very quickly and make it into a net positive.

What does worry me is that kids are being indoctrinated in school and by Facebook and TV on the huge danger they face, and, ultimately, bad public policy decisions will be made that seriously undermine our prosperity.

If one bought into conspiracy theories, the manipulative tentacles of Vladimir Putin and Russia could be seen all over “the existential threat of climate change.”

Putin did not invent “climate change,” but long ago he came to the conclusion that Russia’s economy was backward and almost totally dependent on oil and gas for hard currency. Nobody wants a Russian dishwasher or car or machine tool. If you are Putin, and his new buddies the Saudis, you desperately want American oil fracking to end and the 6 million barrels a day it produces to go away. If he can shrewdly manipulate American public opinion to embrace the climate change disaster theory and boost the “kill dirty fracking” line he wins the game, and we have $80-$100 per barrel oil again.

Theories about the weather go hot and cold. Check out the Greenland story.

Question: Do you believe climate change is mainly caused by people?

Swarfcast Ep. 58 – Romas Juodvalkis, Centered on Centerless Grinding

October 25, 2019 Comments Off

By Noah Graff

On today’s podcast we delve into the world of centerless grinding, a vital process in precision machining that some less informed folks label as a dirty, dark art. Our guest is Romas Juodvalkis, founder of Allways Precision, one of the largest Cincinnati centerless grinder rebuilders in the United States.

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Main points of the interview

(3:00) Romas discusses founding Allways Precision 27 years ago as a repairer and rebuilder of Cincinnati centerless grinders. He says the company over the years has grown its capabilities and now provides automation devices, both for the grinders it sells as well as other types of machines. The company now builds grinders with CNC capability that have as many as 11 axes for doing complex features on parts.

(5:00) Romas discusses more about the advantages of his CNC retrofitted centerless grinders. For example, instead of doing four passes on a part to get all the dimensions a machinist can do the job in one pass.

(6:30) Romas discusses various uses of centerless grinders such as grinding bar stock so it can be run in the collets of a CNC Swiss machine or finishing off parts that have already been machined to obtain better tolerances.

(7:25) Romas discusses the advantages of using centerless grinders over cylindrical grinders.

(9:20) Romas discusses the lack of proficiency of most machine shops at operating centerless grinders. He says people are a little scared of centerless grinders because they don’t understand the process. He talks about which machining companies can justify having centerless grinders. He says they are only worth owning if a company has a high enough volume of parts and skills to run the machines efficiently.

(12:30) Romas says that centerless grinding is not difficult to learn. His company is usually able to train people to use his machines in three days.

(13:30) Romas says that all types of metals can be centerless ground. He also has customers who centerless grind plastics, glass, ceramics, carbide and diamond. He says anything that needs to be round with precision can be ground.

(14:55) Romas says Allways has been growing constantly and estimates he only has around 10 competitors, and they all vary in their specialties and work standards.

(16:44) Romas says that most of the best centerless grinders available are rebuilt Cincinnati grinders since Landis bought out Cincinnati in the ‘90s. He says Landis built only eight centerless grinders last year while he sold 25 rebuilt ones. He says some centerless grinders are built overseas but most of them are poor quality and will last only a few years before they should be thrown out. Allways Precision uses Cincinnati centerless grinder castings from all the back to the 1940s because they were built so well. Allways stabilizes the castings, rescraping, refitting, and realigning everything.

(19:45) Romas talks about the B&R CNC control Allways puts on its machines, which he says can be continuously updated. He says it is a big improvement from controls such as Allen Bradley or Windows, which become obsolete after a few years.

(22:45) Romas says Allways rebuilds one machine every two weeks and has 350 machines in its inventory available for rebuild.

(23:00) Romas says prices for machines from Allways range from $50,000 for used machines in good working condition to $350,000 for full rebuilds with CNC controls.

(23:45) Romas talks about Allways’ business as a robot integrator for CNC machines and centerless grinders.

(25:20) Romas talks about the safety features on his rebuilt machines.

(26:20-31:50) Romas talks about his company’s emphasis on educating customers and potential customers on how to get the most out of Cincinnati centerless grinders. He says that with a few days of proper training he can dramatically improve a shop’s output.

Question: Do you have a desire to learn to centerless grind?

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Not About Money

October 23, 2019 Comments Off

By Lloyd Graff

Let’s start with a discussion of two labor strikes that affect my life.

The General Motors strike that may be in its final stages is less about money than it is about control. GM and the UAW seemingly agreed on the basic pay issues before the strike even started. What GM President Mary Barra and the GM Board were really concerned about was the ability to make key decisions such as closing a factory or moving work to Mexico without the UAW having veto power. Indication of that is workers at the Spring Hill, Tennessee, plant voting against the settlement because they see it as an opportunity for GM to continue to use a significant number of temporary workers to staff the factory. GM is offering $60,000 buyouts to older workers. The strategy of GM is to hire younger, cheaper employees. To younger factory workers it appears the union is selling them out. There appears to be a power struggle between younger and older workers for control of the UAW.

GM employees and Chicago school teachers have something in common

Another factor involved in the GM approach is the comparative financial weakness of Ford and Fiat Chrysler. The UAW has little power in most foreign builders’ plants but still has a strong grip on Ford and FAC workers. The GM-UAW settlement will be very difficult for these companies to accept in a weakening vehicle market requiring potentially massive changeover costs to electric vehicles.

* * * * *

The Chicago Teachers Union strike is also about power and control, not so much about wages.

Chicago has a new mayor, Lori Lightfoot. She is an unusual political newcomer to Chicago. She is an African-American lawyer and Yale graduate from Massillon, Ohio, with no ties to the Democratic machine which has run Chicago for 60 years. She trounced the machine candidate Toni Preckwinkle 3 to 1, winning every single ward in the city. Preckwinkle was backed by the Teachers Union and other city unions, and the strike is their attempt at revenge. If the union “wins” it will strangle the city, which is already in desperate financial shape, by forcing more borrowing at 10% or more and essentially bankrupting Chicago. Preckwinkle and the Union apparently think they can pick up the pieces of a failed Lightfoot tenure. Meanwhile, the kids are out of school, the schools are half empty when in session because many are in poor repute, and wages and benefits are already among the highest in the country.

* * * * *

The World Series and the NBA season both start tonight (when I’m writing this).

Houston and Washington in Major League Baseball are shockingly similar teams. Both have two potential Hall of Fame starters and excellent third starters who played for the Arizona Diamondbacks last season. In Alex Bregman and Anthony Rendon at third base, respectively, they have likely MVPs at the hot corner. Both have outstanding outfields, decent bullpens, and good defensive catchers. The one clear edge goes to Houston where Jose Altuve plays for the Astros. The 5’6” Altuve is the most charismatic player in baseball and perhaps the best all-around star in the game.

The NBA is hard to figure in October with 82 games and the playoffs lasting into June. LeBron is with the Lakers, and Anthony Davis joins him. Kawhi Leonard has moved to the LA Clippers to team with an overrated Paul George who is already injured.

The Golden State Warriors still possess Steph Curry and Klay Thompson, but Thompson is recovering from a torn ACL. Kevin Durant is gone so Steph needs to score 46 points a game.

In the East the Boston Celtics will probably be better without the selfish Kyrie Irving. Milwaukee has the unpronounceable “Greek Freak,” and Philly boasts the brute, Joel Embiid, and Ben Simmons who can’t shoot at all.

And finally, Houston still has James Harden and his step-back jumper that nobody else can do nearly as well as he can.

The NBA will be fun again in April.

Question: Is salary the first thing you look at when considering a job offer?

Swarfcast Ep. 57 – Jerry Gates on Running Well Oiled Machines

October 18, 2019 Comments Off

By Noah Graff

Today’s podcast is about reducing friction in our machining and our lives. Our guest is Jerry Gates, founder of Gates Engineered Lubricants, a company near Houston, Texas, which produces metal working fluids, industrial lubricants, and rust inhibitors for a variety of applications.

Scroll down to listen to the podcast.

Main points of the interview

(3:15) Jerry explains the metal working products his company sells such as forming fluids, cutting fluids, corrosion inhibitors, and cleaners. The company’s flagship product, Aladdin 334, is used for deep hole drilling applications such as ejector drilling, trepanning, and gun drilling.

(5:10) Jerry explains the ejector drilling jobs faced by TimkenSteel, one of his company’s significant clients. TimkenSteel drills holes from 2 inches up to 14 inches in diameter through bar stock as long as 60 feet. This requires a mineral oil based product with extreme pressure additives and anti-welding additives because of the long duration of the cut.

(6:15-10:30) Jerry talks about his background. He is the son of a carpenter. He worked in construction but changed his career to selling industrial supplies. He began his training in coolants and lubricants with Master Chemical. Later in his career, Jerry worked for Castrol’s marine division, where he learned more about industrial lubricants.

(10:40) Jerry talks about what led to him founding Gates Engineered Lubricants in 2005. After decades working in the industrial supplies business, he switched careers to sell insurance, but former clients still called him to consult them on their metal working needs. He helped a former Castrol client with its injector drilling problem, which led to him founding his company.

(15:25) Jerry says it is easier for his smaller company to solve customers’ problems because he can focus on executing their specific applications. He says his larger competitors are often set in their ways, using older methods that are less specifically tailored to clients.

(15:55) Jerry talks about improving TimkenSteel’s tool life for injector drilling from 40 feet to 450 feet since Gates took it on as a client 12 years ago. He says his company is usually able to increase clients’ tool life 30-40%.

(16:45) Jerry talks about how Gates’ oil differs from competitors in metal working fluids. His company’s oil based machining products contain no chlorine or animal fats, which he says are still used by 90% of shops. We joke that this makes his oil “kosher.” He says products with animal fats and chlorine are hard to dispose of, bad for the environment, and have been banned by the European Union.

(21:30) Jerry talks about vegetable oil products. Gates offers a few of them, but it focuses more on mineral oils because vegetable oils have the same disposal problems as other products.

(29:30) Jerry discusses the complications that resulted from the Trump administration’s roll backs on environmental regulations. He also talks about the negatives and positives of the Obama administration’s environmental policies.

Question: Are you happy with your tool life?

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A Time to be Bought, a Time to Die

October 16, 2019 • 3 Replies

By Lloyd Graff

It seems like it’s the season for a lot of machining businesses to be selling out or auctioned off. I have worked as an advisor on some of these situations as well, so I have had an inside look at buyers and sellers contorting to get a deal done on an operating business. Selling a job shop as a going concern is really tough unless it is a big and growing business, blessed with depth of management and ownership that is clear about what it wants and decisive when an appropriate buyer materializes. Having a limited debt also helps because it keeps lenders out of the negotiations.

There are buyers constantly looking for deals for attractive firms. Often these sellers are businesses that have already been sold before.

A company I am familiar with near Chicago in the screw machine business started more than 60 years ago with three old Davenport multi-spindles. They may still have those Davenports, along with 100 other ones rebuilt several times, as well as Acmes and New Britains, even a few Brown and Sharpes. They have bought out many small players along the way, been highly disciplined on capital equipment purchases, built up a factory in Mexico, diversified their locations, avoided unions, and consistently rewarded their private equity owners. Their reward—being sold every five to eight years to a new private equity company that can take advantage of fresh depreciation to shelter cash flow.

For better or worse, this is the game for profitable job shops these days because private equity firms are decisive and clear about what they are looking for. For profitable businesses over $10 or $15 million in sales, private equity firms are usually vying against other firms like themselves because most other job shop owners do not have the expertise or banking connections to compete with them for clean, nonproblematic companies.

However, some job shop owners like John Habe IV of Metal Seal Precision in Mentor, Ohio, have decided to challenge the private equity guys on deals that are a little too small for them or that are turn around situations.

John has acquired several turned parts firms, most of them under the radar for private equity firms because they lack profitability or size. But they fit into John’s group of companies. They add value that is greater than potential auction value, or they have extra equipment that can be quickly turned into cash.

John has developed internal talent that can dissect the financials of a target like a private equity firm would do, and he has access to consulting firms to augment his own people. He also has his brothers as partners to run the day-to-day operations of Metal Seal.

Most job shops are not easy turnaround candidates or fertile turf for private equity groups. They usually end up as auction or liquidation situations, often dictated by a lender, but not always.

There are no perfect times to sell or buy a job shop. Often owners wait for a market improvement to build up their free cash flow numbers. Private equity buyers and most other potential buyers usually want to buy a job shop for a multiple of EBITDA (earnings before interest, taxes, depreciation, amortization). That multiple is usually 3-5 times depending on the buyer’s perception of the company’s strength.

This is not a rule set in stone. Businesses that are breaking even or losing money can be sold if they have some vital ingredient that other companies covet, like people, location, unique customer relationships, or unusual processes or licenses that are hard to duplicate such as nickel plating or FDA approvals. Sometimes a synergy with a company’s customer base enhances the value of a business.

Yet the sale of businesses as going operations is usually a long contorted happening. Lawyers always slow things down with cumbersome contracts which require other lawyers to untangle. Environmental issues often pop up. Family jealousies derail many deals. Often buyers and sellers dislike one another, and emotions count when family businesses are being sold to outsiders.

When you see the auction brochure of a competitor come across your desk it was probably a candidate for a buyout as a going operation at one time. In the end, at least one important missing piece led to its eventual liquidation.

Question: Will the 2020 election affect your business or job?

Swarfcast Ep. 56 – The Screw Machine Guy, Part 2

October 10, 2019 Comments Off

By Noah Graff

Today’s podcast is part 2 of an interview we did with Wes Szpondowski, plant manager at Wyandotte industries, a 60-year old screw machine shop in Wyandotte Michigan founded by his grandfather.

Wes talks about his aspirations to keep Wyandotte relevant for the next forty years. He also discusses the fatal traps a machining company can fall into if it’s not careful.

Scroll down to listen to the podcast.

Main Points of the Interview

(3:18) Wes discusses Wyandotte’s preferred quantities for jobs. He says the company’s sweet spot is 15,000 to 20,000 pieces, as opposed to million piece orders.

(4:08) Wes talks about Wyandotte’s automotive work. He says the company is Tier 2 or Tier 3. He says that American car companies always try to take every cent they can from suppliers, while Japanese automakers are less greedy and gravitate toward forming longterm partnerships.

(7:20) Wes says the shop has no plans to buy million dollar machines. It doesn’t have the work to justify those machines or the stomach for the risk. He says that the company can’t survive running mostly Acmes, not because of the inferiority of the machines but because it will be too difficult to get the next generation to work on them.

(10:10) Wes says he plans to buy LICO machines for Wyandotte. He says they are like Brown & Sharps that can do more sophisticated parts with a quick setup time. He said LICOs are much faster than typical CNC lathe and he thinks it’s a machine that young people would enjoy running. He thinks that $250,000 to $350,000 is a price range that is sensible for his company.

(17:40) Wes says he likes to examine the course of events that led machining companies to go out of business. He calls it “auction forensics.” He says people often repeat the same story—the grandkids ran the company into the ground and the company bought expensive equipment that did not pay off. As a grandson of Wyandotte’s founder, Wes says the story gives him extra impetus to work hard and make responsible equipment decisions.

(21:52) Wes talks about his first job at Wyandotte. He had to work his way up from the bottom and was not even given a full-time shift to start. Some of his coworkers liked him, and others felt threatened by him.

(25:50) Wes gives his thoughts on whether or not he will have partial ownership of Wyandotte in the future. He says ownership is a possibility, but in any case, he is grateful for the privilege of working at the company for so long and being plant manager.

(27:00) Wes says he is able to relate to the company’s employees because he started from the bottom.

(28:10) Wes talks about his admiration for his uncle who owns Wyandotte. He respects that he is almost 80 years old and still comes to work everyday.

(30:30) Wes likes his role as plant as plant manager at the company. He sees himself working as plant manager for the foreseeable future because the company does not have a replacement with his skills both for working with the machines and with the employees.

Question: Do you think we’re headed for a recession?

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