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Thursday, 16 July 2015 09:59

New owner seeks to grow Allegan fabricator by broadening customer base

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A manufacturer of custom containers and cellulous blowing machines, Allegan-based D&J Precision Machining is on track to grow sales by a modest 5 percent by the end of the year. The company, which was recently acquired by long-time manufacturing executive Mark Allen, plans to double its business to $4 million in annual sales in the next five years. To do that, Allen expects to ramp up the company’s sales and marketing activity to target new customers. A manufacturer of custom containers and cellulous blowing machines, Allegan-based D&J Precision Machining is on track to grow sales by a modest 5 percent by the end of the year. The company, which was recently acquired by long-time manufacturing executive Mark Allen, plans to double its business to $4 million in annual sales in the next five years. To do that, Allen expects to ramp up the company’s sales and marketing activity to target new customers. COURTESY PHOTO

Long-time manufacturing executive Mark Allen learned firsthand that patience remains a key virtue for anyone looking to acquire a business.

After a 30-year career in the automotive industry and a brief stint at a West Michigan furniture manufacturer, Allen got the push he needed to try his hand at being an entrepreneur when a restructuring left him “needing something to do.”

“It’s been something that I’ve wanted to do for years and try to accomplish,” he said of owning his own business.

But the path to becoming a business owner was more complicated than he expected.

After six months of actively searching and “chasing opportunities,” Allen found Allegan-based D&J Precision Machine Services and closed on a deal to acquire the manufacturer in late May, wrapping it into his Allen Partners LLC holding company.

The deal is one example of the increasing M&A activity among manufacturers in West Michigan, particularly as more executives make the move to owning their own companies amid a massive generational shift in business.

While shopping around for a deal, Allen established a handful of broad criteria to determine which company would be the most viable option for him. For Allen, that meant finding a company that had at least a 10-year history, operated in a market he could understand and that had a positive cash flow. The business also needed to be something he could grow.

A custom fabrication shop, D&J manufactures hoppers, top bins, support bins and other containers for the agriculture and general industrial market. The company also manufactures industrial cellulose blowing machines for insulation.

Allen financed the deal with a mix of cash and U.S. Small Business Administration-backed debt from Consumers Credit Union. Terms of the deal were not disclosed.

Grand Rapids-based Calder Capital LLC worked with the seller to broker the deal.

From the seller’s perspective, the D&J deal represents one of the key drivers for M&A in the manufacturing industry as baby boomer business owners continue to reach retirement age and look for options to transition their companies.

That was the case for Darrel Shank, the founder of D&J. After turning 71 years old, Shank said it felt like it was time to exit his business and spend more time with his grandchildren. He planned to transition D&J to another family member, but those plans fell through, leading him to put the company on the market.

Just as the process took longer than expected for Allen, Shank likewise took his time in finding the right buyer.

“I looked quite a while to find the right key to fit the lock,” Shank said. “Mark came along and seemed to be the right fit.”

Shank plans to remain available as an adviser to Allen as D&J continues to grow.


BROADEN THE BASE

That future growth will be predicated on the company expanding its base of customers, Allen said. To date, D&J has relied mostly on word-of-mouth to gain new customers. However, that means that a small group of customers make up the majority of D&J’s business and the rest of work comes from one-off and custom fabrication jobs.

To change that, Allen wants to incorporate a more aggressive sales and marketing strategy to add new customers to the mix.

“The biggest challenge will be growth,” Allen said. “It’s always hard to go find and acquire new customers.”

The good news, he said, is that the company has space to accommodate increased production. D&J uses only about 50 percent of its 34,000-square-foot production space, giving it flexibility to meet the needs of new customers, according to Allen.

From its modest beginnings in 1988 in a pole barn behind founder Shank’s home, D&J now generates between $1.5 million and $2 million in annual sales. The company forecasts sales to grow 5 percent this year and to double over the next five years, Allen said.

D&J employs 13 workers, but does not have any immediate plans to hire additional people.

In the near-term, Allen plans to make the transition as easy as possible for D&J’s customer base.

“It needs to be seamless from their viewpoint,” Allen said. “It’s an important thing: You have to take care of your customers and employees to grow.”


MANAGING EXPECTATIONS

As the general economy and the manufacturing industry improves, the current environment continues to be a seller’s market with more deals coming to market, Allen said.

While the influx of sellers made it easier for Allen to find a business that met his criteria, the process still took some time before he found the right fit.

“I probably sorted through 15 or 20 deals to find this one that fit,” he said. “I think there are deals to be done, but finding the right fit isn’t always easy.”

Allen expects M&A activity for manufacturers to remain elevated as the economic recovery continues.

“There’s pent-up cash and investors looking for opportunities,” Allen said. “If you have that many people looking, deals will continue to get done.”

For other entrepreneurs looking to acquire a business, Allen advocates that they exercise patience and perseverance in their search and plan for realistic timelines. Regardless of the size of the company, each deal has its own unique characteristics that may affect how long it takes for an acquisition to close. In D&J’s case, the acquisition took nearly six months to finalize, Allen said.

“I thought I was close to doing a couple of other deals, but they just didn’t happen,” Allen said. “Part of it for me was finding the right structure and right bank and then everything fell into place. It took much longer than I thought it would.”

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