WAYLAND — With the acquisition of a West Michigan aerospace manufacturer, Tribus Aerospace aims to become a regional consolidator in the highly fragmented industry across the Midwest.
The deal for contract manufacturer Precision Aerospace Corp. of Wayland and the affiliated Precision Micro Mill LLC positions San Diego-based Tribus to act on deals in the region’s aerospace supply chain, as small players in the industry seek partners for longevity and growth, executives told MiBiz.
For PAC President Bill Hoyer, the deal came about as his company needed to make key updates to its Wayland plant. Tribus’ commitment to a $4 million investment in equipment and infrastructure sealed the deal to sell to the private equity firm, said Hoyer, who remains with the company and became a shareholder in Tribus.
“Consolidation is frankly really good for the industry. It needed it,” Hoyer told MiBiz. “It was so segmented in terms of having these tiny little shops all over the place. That’s really tough for our customers and it’s also tough from a competitive perspective because … these are glorified mom-and-pop shops. We have invested into long-term thinking.”
Precision Aerospace focuses on cellular manufacturing for a broad range of components for the commercial, defense and civil flight industries, Hoyer said, noting the company focuses on low-volume, high-mix parts.
“We’ve got adequate space here,” Hoyer said of the Wayland facility. “(The $4 million) investment is going into equipment and infrastructure, and that’s going on as we speak. One of my pre-requisites in terms of divesting was to have a buyer who understood the investment requirements of this business. It constantly needs to be invested in to be technologically relevant.”
For aerospace manufacturers, relevance comes in part through “embracing a lot automation,” he added.
“It’s (adding) automation where the technology has been developed to kind of service this type of market,” Hoyer said. “Whereas in automotive, you put in a production line that’s going to produce 3 million widgets for the next two or three years, we are making… 20 or 30 widgets a month, but we may make those widgets for 15 or 20 years.
“It’s a very long product life cycle, which, at that point, justifies the investment.”
THE RIGHT FIT
In a segmented industry, Precision Aerospace has established itself among the ranks of suppliers in the West Michigan region, according to Hoyer.
That’s because Precision Aerospace, which generated $30 million in annual sales, has reached a scale beyond the many other mom-and-pop shops, he said, noting the median annual sales for aerospace suppliers in the region is about $6 million.
Precision Aerospace’s scale positioned it to become a platform company for Tribus.
“Each market tends to be driven by a few key players,” Tribus co-Chairman Scott Shedd told MiBiz. “We can take advantage of all that (Precision) has built to serve smaller companies that may make beautiful products but maybe don’t have the same level of infrastructure as Precision Aerospace.”
Tribus aims to use Precision Aerospace as its Midwest platform to consolidate the aerospace supply chain in the region, particularly as dealmaking in the sector continues to ramp up in the years ahead.
S&P Global noted the consolidation trend in a recent defense/aerospace industry forecast: “The pace of M&A in the U.S. defense sector has been increasing over the past few years and could accelerate further in 2018 as the visibility surrounding the government’s future spending improves. In the government services space, there has been a significant amount of consolidation and intense price competition due to the lack of available work, which has favored companies with greater scale. We expect this trend to continue.”
Although the aerospace supply chain remains small in Michigan, the state’s operations when considered by size are much larger than in other parts of the country, Shedd said. Precision Aerospace’s 170 employees now make up most of the workforce under Tribus, which has roughly 210 employees.
“The Michigan market is more concentrated (than California’s),” Shedd said. “The market for aerospace manufacturing really grew up in southern California due to many factors, not the least of which being weather. Because of the way it developed, there are hundreds of tiny mom-and-pop shops scattered all around the area. The aerospace market developed later in Michigan with Tier One/Tier Two suppliers like Parker, Woodward, Eaton and Triumph each having a significant presence.”
For Hoyer, the Midwest is “a nice little hidden secret” in the U.S. aerospace industry.
“There are a lot of opportunities,” he said.
In Precision Aerospace, Tribus saw a contract manufacturer that made critical components for the industry that it could use as a platform to acquire other suppliers.
“We think about (targeting) turbine engine components, flow-control components, which are valves and pumps and manifolds, and motion-control components — gears and bearings and actuators,” Shedd said. “(Precision Aerospace), in particular, does a lot of valve work, a lot of manifold work and a lot of actuation work.”
Besides being able to manufacture hydraulic manifolds, port caps and mounting flanges, Precision also supplies many divisions of well-known aerospace players such as Parker Hannifin Corp., Woodward Inc., Moog Inc. and L3 Technologies Inc.
Founded in 1956 and acquired by Hoyer in 1990, Precision Aerospace grew sales by 28 percent in 2016. After “throttling back” growth in 2017, Hoyer said he hopes to grow the company’s $30 million annual sales by 14 percent this year.
“The aerospace industry is really fragmented,” Shedd said. “We have a database of roughly 20,000 aerospace companies, and if you look, 95 percent of those companies are sub-$25 million companies, and they are all almost owned by individuals, sole (proprietors). Because of all of that, it’s going to consolidate over the next 10 to 15 years.”
For his part, Hoyer believes Tribus’ backing of Precision Aerospace comes at an opportune time in the industry for companies that have the resources to grow.
“I am really bullish on the (aerospace) industry,” Hoyer told MiBiz. “I have not seen it this good in 28 years, and this is probably the best it’s been.