Mergers and acquisitions in metal fabrication: The story behind one shop’s success

Len Morrissey joined RAPID six years ago. When Proto Labs bought RAPID in December 2017, RAPID was on track to earn more than $45 million in sales for the year. Photo courtesy of Proto Labs.

In 2010, Nashua, N.H.-based RAPID Manufacturing was an $8 million custom sheet metal fabricator. In December 2017 the business was purchased by Maple Plain Minn.-based Proto Labs Inc., a 2,000-employee company specializing in plastic injection molding, machining, and 3-D printing, with a focus on rapid prototyping.

According to a Proto Labs press release, the company acquired RAPID for $120 million. By that time RAPID obviously wasn’t just an $8 million shop. By 2017 RAPID had grown to a 300-plus-employee, $45 million operation.

Over its history, RAPID has remained a highly diversified operation with extremely low revenue concentration. According to the “2017 Financial Ratios & Operational Benchmarking” survey from the Fabricators & Manufacturers Association International, a fabricator’s top eight customers make up on average 80 percent of the fabricator’s revenue.

“Historically, we’ve never had a customer exceed 3 percent of our revenue,” said Len Morrissey, who joined RAPID six years ago as CFO. In April 2017 he became president of the organization, now renamed RAPID, a Proto Labs Company. “Even our top 10 customers represent a very small portion of our business.”

How did the fabricator accomplish this? RAPID does differentiate itself through rapid response, most notably through its proprietary eRAPID and RapidQuote automated quoting software. A potential customer can upload a CAD file of a part or assembly and instantly (with eRAPID) or within 24 hours (with RapidQuote) receive a quote for the work.

Still, it wasn’t all about software. Morrissey attributed success to a combination of factors that could be boiled down to two areas. First, RAPID has a culture that embraces rapid response. In fact, the fabricator has a similar culture of its new parent company. Second, RAPID invested heavily in sales, not just in quoting automation, but also in salespeople.

Culture of Rapid Response

Proto Labs’ and RAPID’s histories are in some ways very similar. The details are different, but the founders of both companies shared the same intent.

As stated on Proto Labs’ website, “Our company was founded in 1999 by Larry Lukis, a successful entrepreneur and computer geek who wanted to radically reduce the time it took to get injection-molded plastic prototype parts. His solution was to automate the traditional manufacturing process by developing complex software that communicated with a network of mills and presses. As a result, plastic and metal parts could be produced in a fraction of the time it had ever taken before.”

Here’s how RAPID’s website describes its company’s founding: “RAPID was founded in 2001 by Jay Jacobs out of the desire to get sheet metal parts from manufacturers to his customers in a timely manner. Jacobs worked in 3-D printing and additive manufacturing until 1999, when he became a manufacturer’s representative. Accustomed to getting quotes in hours and parts in days from his previous employer, Jay was surprised to fight to get a quote in less than two weeks, with finished prototypes typically taking four to six weeks to reach the hands of his customer.”

So in 2001 Jacobs, “with the help of his family and friends, his local bank, and his and his wife’s life savings,” bought a small sheet metal shop called Russell Sheet Metal. Just days after 9/11, on Sept. 14, 2001, the new RAPID Mfg. opened its doors.

Rob Bodor, vice president and general manager, Americas, of Proto Labs, recalled meeting RAPID’s founder at tradeshows and industry events four years ago. Those brief meetings led to a big opportunity. Photo courtesy of Proto Labs.

On the surface, this wasn’t the best time to buy and rebrand a business. But recessions do force manufacturers to scrutinize their existing supply chains, which in turn opens opportunities for fabricators who do things a different way.

In 2004 RAPID bought its first laser. In 2006 it moved to a larger facility and added capabilities, including in-house silk screening and powder coating. Then in 2009, just in time for the Great Recession, RAPID purchased RS Machining in Hudson, N.H., and renamed it RAPID Machining, a division that subsequently outgrew its first two locations within four years. In 2012 the company launched RAPID Wire Cable, another prototyping facility for wire harnesses and cable assemblies.

“Lean and continuous improvement have been a big focus for us,” Morrissey said. “Like all lean practices, our brand of lean is really about empowering employees at all levels to drive decision-making and bring ideas to the forefront, with the focus on incremental improvements. We do that within the context of our manufacturing process, which is tailored for flexibility and being able to fulfill a quantity of one as well as higher quantities.”

Sales Focus

The term web shop has circulated around FABTECH^® and other industry events for several years now. The idea seems elegant: A customer uploads a 3-D CAD file and soon after—either immediately or within minutes or hours—receives a quote. When the customer accepts the quote, the job is scheduled and downloaded to the machines, all automatically.

In November The FABRICATOR covered 24/7 Tailor Steel, a fast-growing, 50-million-euro custom fabricator in the Netherlands that could certainly be called a web shop. Customers upload 3-D CAD files, get quotes, accept them, and within minutes or hours, those jobs are running on one of the company’s lasers. 24/7 achieved 45 percent sales growth in 2017 and added on average 19 new customers a day—all without a formal sales force.

RAPID also has its own quoting software and has streamlined and automated a lot of front-office operations. Did that software help the company grow from an $8 million shop to the $45 million enterprise Proto acquired in December? It did, but according to Morrissey, quoting software was only a piece of the puzzle.

What works in certain markets (like in, say, the Northern European market served by 24/7 Tailor Steel) may not work in all markets or for all companies. Alas, there is no one universal equation for success.

Custom fabrication generally isn’t the easiest industry to get into if someone wants to grow a sustainable business quickly. For many, new accounts can take time to become major accounts. Sure, a fabricator can grow extraordinarily quickly on the back of a handful of large customers, but what if those accounts go south? With this increased risk, high revenue concentration can be a red flag for companies looking to acquire, which in turn puts the brakes on industry consolidation. All this has helped create an industry with relatively few large players and a “long tail” of smaller ones with about $10 million in revenue and less.

“A combination of things brought us over that proverbial hump of $10 million in annual sales,” Morrissey explained. “We brought on a talented leadership team, including Tom Pursch, a great COO who started a year before I did. The first critical step was bringing on people who could carry out the founder’s vision.”

Next came the sales effort. “When I joined RAPID we mainly had an outbound-call sales group,” Morrissey said. “But over the past six years we created a lot of close relationships with customers throughout the U.S. Our salespeople travel to key accounts on a regular basis, even if those customers aren’t that large. This has helped us drive and sustain growth over time.” The company also hired to support its sales effort. “Six years ago we had three salespeople,” he said. “Today we have more than 20.”

These people came to RAPID with different levels of experience and from various sectors of the economy, not just manufacturing sales. “Most of the salespeople we hire are trained on the job,” Morrissey said. “For us, it’s about aptitude and a willingness to learn how our sales relationships work.”

About Sandboxes

Rob Bodor, vice president and general manager, Americas, at Proto Labs, recalled meeting Jay Jacobs at tradeshows and other events. Those casual meetings began about four years ago.

“We were in similar [market] spaces, so we’d meet and talk, and then about a year and a half ago we started talking about potential commercial partnerships and collaborations,” Bodor said. “And in January 2017 we started selling our customers sheet metal work that was fulfilled by RAPID. That worked effectively, and soon people at both companies got to know each other much better. We found we had very similar cultures and we were aligned in how we think about the marketplace and how we approach customers and offer customer service.”

All this helped make an acquisition a real possibility that could benefit both parties. After all, both had started in business to offer quick turnarounds of prototypes and low-volume runs. Both developed quoting automation software, RAPID for sheet metal and Proto Labs for injection molding, 3-D printing, and machining.

Over time both have evolved to include production work as well. A high-volume job for RAPID would entail tens of thousands of units a year, while a high-volume job at Proto Labs would be tens or sometimes hundreds of thousands, depending on the part size and other job characteristics.

“Proto Labs is really focused on a low cost of entry and quick turnaround for low-volume work, though we have the capabilities to expand to higher volumes as well,” said Bodor. After hearing Bodor’s statement, Morrissey chuckled, then added that RAPID essentially could make the same statement.

And then there were the strategic advantages and complementary services. On the machining side, Proto Labs’ machines can handle work requiring smaller work envelopes, while RAPID’s machines can take on larger workpieces.

Then of course was the sheet metal component. “We saw a lot of opportunity there,” Bodor said. “Sheet metal is something Proto Labs did not offer, but almost three-quarters of our customers have a demand for it.”

After selling the company, Jacobs left RAPID to pursue other interests, including philanthropy. And at this writing, the two companies are working to merge their operations, sharing best practices in sales, software, and manufacturing.

The acquisition gives both companies a unique mix of processes. It illustrates potential for new ways for fabricators to grow, organically or through M&A. And it shows that sheet metal companies, plastics companies, machining companies, and even 3-D printing companies need not play in different sandboxes.

Proto Labs, www.protolabs.com

RAPID, a Proto Labs Company, www.rapidmanufacturing.com