M&A and the hunt for talented employees

The tight labor market in metal fabrication is so tight, in fact, that some of the country’s largest fabricators say that the lack of labor is inhibiting their growth. As Mayville, Wis.-based MEC and others detailed as part of The FABRICATOR’s FAB 40 (which was in our June issue), fabricators can only automate so much. At some point, they just need more people.

With unemployment at record lows, they’re looking at other ways to grow. This includes partnerships and potential acquisitions.

Scaling up in this business is easier than it used to be, and a fabricator merging with another can create many efficiencies. There’s the increased purchasing power, no small thing these days, considering material price trends. And now the industry has software and automation to accommodate large high-product-mix-production organizations, with dynamic nests on cutting machines and kit-based product flow through bending, welding, grinding, and even powder coating. Scaling up a high-product-mix operation still isn’t easy, but software and data analytics are perhaps making it more manageable.

Even the front office has seen dramatic levels of automation. Thanks to a system that takes full advantage of electronic data interchange, the eight administrative employees at Libertyville, Ill.-based Laser Precision Inc. handle thousands of part numbers. Fabricators like Nashua, N.H.-based Rapid Mfg. (now part of Minnesota-based Proto Labs Inc.) have touted their web-based ordering systems. Customers upload their 3-D CAD files, and the system automatically produces a quote shortly thereafter.

When I visited 247 Tailor Steel in the Netherlands last year, I saw just two people in the front office, there to handle financial credit checks. Virtually every other office activity was basically automated.

Customers upload drawings to the company’s quoting software Sophia (named after the owner’s daughter), and the software takes it from there. It checks for bend radii and does most of the necessary engineering in an instant. If the drawing can be produced by the company’s laser cutting machines and press brakes, the software produces a quote. If the customer accepts the price, the job is scheduled and drawing information is postprocessed and sent to the machines.

If that’s not scalable, I don’t know what is.

Of course, these technologies and methodologies aren’t widespread. And there’s also an irony that anyone involved in M&A lives with: The act of acquiring a company isn’t very scalable. In fact, many of the attributes of lean manufacturing and other improvement methods—visual management, focusing on flow, increasing throughput, prioritizing—aren’t yet pervasive in the M&A world, especially when it comes to due diligence.

Kison Patel aims to change this situation. He’s CEO of a startup in Chicago called Day1 that has developed project management software for M&A. “Consider the collection of documents for a counterparty,” Patel said. “It’s a tedious task, and it usually bombards the CFO and treasurer for weeks. Using a project management platform, you can simply drag and drop files. The files are sorted and directly linked to the requests.”

Prioritization in due diligence can help too. Say those performing due diligence need documentation for dozens, perhaps hundreds of issues. Treating all of them as equal can be extraordinarily inefficient, not unlike loading machines with large batches of identical products. Nothing flows. But now, software can help identify priorities so that the process can move forward.

Identifying a “showstopper” in M&A is a bit like identifying a product defect on the shop floor. Mistakes happen, but the later they occur in the manufacturing process, the costlier they become. Similarly, some M&A deals just don’t go through. But in an M&A process with the right prioritization, showstoppers are discovered early.

Patel sells its software to corporate clients and investment banks. “We’re actually helping investment banks build proprietary data sets around buyer behavior,” he said.

For instance, strategic buyers in a certain niche might scrutinize customer contracts. The data software now can look for patterns and define trends about what exactly buyers are looking for and, conversely, what often puts a halt to the deal.

Software may have an indirect impact on another M&A challenge: the cultural aspect. “Everyone gets caught up in the financial analysis,” Patel said, “but the people perspective is one of the most challenging parts of an acquisition, and software isn’t going to solve this.”

But he did add that software and related process controls could free up time for managers to focus on the people aspect. They can talk with managers and owners, get to know them, and truly discover if the organization would be a good fit.

Still, what does “good fit” really mean? It’s a phrase so many managers have pondered, whether they are deciding to hire someone or to buy another company.

Jason Paglia, president and CEO of North East Pa.-based F3 Metalworx gave a pretty good answer. F3 used to be three separate entities owned by the same investment firm. One was a custom fabricator, another was a wire and store fixture manufacturer, and another was a custom powder coater. Paglia and his team orchestrated the merger for months, and on July 1 the three companies began doing business under one umbrella.

“Depending on the risks involved, it’s OK to fail fast,” Paglia said. He explained that people who are a good fit usually are open to change, especially when the calculated risk is somewhat low.

Sure, certain changes have big risks and, hence, should be scrutinized. But if someone challenges the status quo and has an idea to make things better—be it a different inventory strategy, a new way to plan for setups, even a new scheduling method—people shouldn’t be afraid to change or even fail. “If we try and fail, and if it doesn’t work out, we try something different,” he said. “The worst thing you can do is fail slowly.”

Of course, “fast change” and “slow change” can mean different things to different people. That said, if people perceive change similarly, they’re likely to work very well together.

From any perspective, a failed merger usually is a slow failure. To avoid it, managers need to talk, connect, and make sure the company’s people will be a good fit—or, more precisely, will react and adapt to change in a similar fashion.