Investors Turn Eye to Aerospace
The phones are ringing off the hook at many metal finishing shops across North America, and it isn’t just someone wanting a quote on aluminum anodizing.
Investment groups and equity firms are scouring the U.S. and Canada to buy finishing shops that they feel will provide the best return on their money of any manufacturing sector around.
“I get sometimes three to five calls a day,” says Cy Gipoor, owner of Morrell Aerospace, a metal finishing operation in Los Angeles. “Same thing every time; they want to know if I am ready to sell.”
It’s a ritual repeated all over, and it won’t probably stop any time soon as metal finishing remains attractive as an investment opportunity, especially when the acquisition is combined with another metal processing operation to maximum capacity and services.
“Metal finishing has become one of the fastest growing segments in the mergers and acquisition area,” says Ryan Murphy, vice president of Salem Partners, a Los Angeles-based firm specializing in helping business owners get the most for their companies when it comes time to sell or take on a partner.
Lucrative Finishing Market
For one, it puts an investor into the aerospace and defense industry, a lucrative market that has seen significant growth due to increasing production rates of commercial aircraft. Additionally, shops in non-aerospace industry segments—including automotive or agriculture—have seen increased customer demand as the general economy slowly improves.
Situated in Los Angeles with additional offices in San Francisco and Austin, Salem Partners—and especially Murphy and Trevor Bohn, a managing director—has been very active in the mergers and acquisitions of finishing shops over the past four years.
Though Salem has several different industry verticals, Murphy and Bohn focus on the aerospace and defense industry, which encompasses a broad range of businesses. So the duo began looking at sub-sectors to see what areas they could find a niche, and that’s where they came to meet the metal processing industry, and specifically its finishing sector.
“We quickly saw that it was ripe for mergers and acquisitions,” Murphy says. “Valuations have increased dramatically over the past five years, and in some cases are now nearly twice what they were a few years ago.”
The biggest driver of increased valuations and M&A activity was what Murphy calls the “macro forces” in the aerospace industry, one that has seen the sector grow exponentially with new orders for planes and parts.
“Metal processing has been a big sub-sector that has been overlooked by a lot of investors,” he says. “A lot of the metal machining industry saw consolidation in the mid-2000s all the way through to today, but the metal processing industry was a little bit forgotten.”