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Sunday, 17 August 2014 22:00

Targeted acquisition strategy yields growth for TG Manufacturing

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TG Manufacturing Inc. formed in 2008 to acquire existing West Michigan companies and create an integrated metals manufacturing operation. To date, the company has made four acquisitions, including two so far in 2014. The company generated between $10 million and $25 million in sales last year. TG primarily serves the material handling and logistics equipment market, as well as the automotive and appliance industries. TG Manufacturing Inc. formed in 2008 to acquire existing West Michigan companies and create an integrated metals manufacturing operation. To date, the company has made four acquisitions, including two so far in 2014. The company generated between $10 million and $25 million in sales last year. TG primarily serves the material handling and logistics equipment market, as well as the automotive and appliance industries. COURTESY PHOTO

After a career in the automotive supply chain, Rich Achtenberg saw an unfilled niche for an integrated metals manufacturer in West Michigan.

But he was not interested in starting up a new company from scratch to fill gaps in the market. Instead of starting with a blank sheet, Achtenberg created a holding company and went to work on a strategy of targeted acquisitions to assemble the various capabilities under one mantle, a process that ramped up so far this year.

“We needed to start this off with an acquisition,” said Achtenberg, the president of TG Manufacturing Inc., which he launched in 2008. “I wasn’t going to do it in my garage, and I’d spent a lot of time doing M&A for other companies over my career.”

The company’s M&A strategy accelerated in 2014 as TG has completed two transactions. The company began the year by acquiring Spring Lake-based Craft Steel, a metal stamper and fabricator. In July, it also added Sand Lake-based C&R Machine Corp., giving TG access to the growing energy sector. The company consolidated both operations into a 20,000-square-foot facility in Byron Center, Achtenberg said.

“The Byron Center facility has become a tech facility for us where we do laser cutting, CNC turning and CNC brake press,” Achtenberg said. “It’s become our flagship technology operation in terms of processes.”

Previously, the company acquired AIM Industries in Grand Haven in 2011, adding 55,000 square feet of production space and heavy stamping, robotic welding and tool building capabilities. TG’s first deal was in 2008 when it acquired Dorr Industries Inc.

As a full-service metals manufacturer, TG Manufacturing works with customers in a variety of markets, but approximately 70 percent of its business is with material handling and logistics equipment manufacturers and the automotive and appliance industries, Achtenberg said. The company primarily manufactures sheet metal and stainless steel products and has the capability to work with most metals.

Achtenberg said the company’s compounded annual growth rate of approximately 400 percent proves his strategy is working. TG generated between $10 million and $25 million in sales last year, he said.

TG Manufacturing’s acquisitions are long-term plays to build a diversified portfolio of manufacturing businesses, Achtenberg said, noting the company has little interest in spinning off parts of the business going forward. When considering an acquisition, TG typically looks for companies that can add to its manufacturing capabilities or that help diversify its customer base into new markets.

“There is a strategic purpose in each acquisition we do. We’re creating organic value for the corporation itself. We’re not interested in creating value to sell to someone else,” he said.

When TG made its first acquisition six years ago, competition in the market was relatively slim, Achtenberg said. But as the market continues to pick up, more and more buyers have started to scout for deals, said Randy Rua, president of Rua Associates LLC, an M&A advisory firm that worked with TG on three of its transactions.

In the downturn, only about 20 percent of the firm’s clients were interested in making an acquisition, but that’s recently increased to 40 percent, which indicates there’s a growing group of buyers in the market for deals, Rua said.

While the number of buyers has increased over the years, the market is prime for owners looking to make an exit, Rua said. That’s because average valuations and EBITDA (earnings before interest, taxes, depreciation and amortization) multiples for both private and public companies crested a 10-year high last year, according to a 2014 PitchBook PE Breakdown report.

“Locally, we are getting multiple proposals from buyers and typically they are getting bid up to the point where we are getting premium prices from where it’s been in the last couple of years,” Rua said.

Even with a positive market for sellers, many small business owners are unclear on their exit strategies. Approximately 42 percent of owners are looking to make an exit in the next three years, but many of them have no strategy, according to a study of 956 West Michigan executives conducted by Rua Associates. On average, only 13 percent of these business owners were willing to take the next step toward being acquired.

On a national level, 28 percent of mid-market companies reported being open to selling, a 4 percent increase from last year, according to a 2014 Middle Market M&A Outlook report by Citizens Financial Group. However, both current sellers and those actively seeking a buyer declined by 1 percent during the same time.

Since many sellers are interested in exiting their businesses but haven’t started actively marketing them, the onus is on buyers like Achtenberg to seek out deals, Rua said.

“There are so many good buyers out there that have the resources and talent to do acquisitions, but there’s not enough inventory on the market, so we have to go out and find it for them,” Rua said.

While the transactions have helped fuel TG’s recent expansion, the growth-by-acquisition strategy often comes with unknowns — particularly with how well an established target can integrate into an existing company, Achtenberg said.

“It’s a learning curve both ways when you do an acquisition,” he said.

While M&A accounted for approximately 60 percent of the company’s growth, the rest has been organic, Achtenberg said.

“The first two to three years we did this, there wasn’t much organic growth to be found. The best way to grow that we knew was through M&A,” Achtenberg said. “As things have gotten better, we’re excited about the fact that we can get organic growth rather than going out and doing an M&A deal.”

As the company continues to grow, TG plans to move toward full vertical integration — offering engineering, program management and customer service to its customers, Achtenberg said.

“We’re in a continuous mode to grow the company, most likely in the same balanced way (we did) in the past,” Achtenberg said.

Read 39777 times Last modified on Monday, 08 June 2015 13:17
John Wiegand

Staff writer

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