Acquiring Airplane Parts Manufacturer
I'm looking at acquiring airplane parts manufacturer that focuses on the interior cabin (e.g. galleys, seats, lavatories, etc.). It's a machine shop with several CNC machines and sheet metal operation. Essentially, the company is a subcontractor in the aerospace supply chain.
I'd really love to hear the thoughts and concerns of folks with experience in this sort of business. I don't have any background in engineering (or managing a company for that matter). The company has a staff of machinists that have been with the company for +10 years. There is also a production manager (who only joined 2 years ago) on staff.
1) What are your biggest concerns about the business? 2) Is it reasonable for someone with no background to come in and manage the business? 3) What's a reasonable valuation multiple for such a business?
Revenue size is a big determinate in your ability to run the business, the skills needed at $100M are much different than at $10M in revenue. I'm guessing small because you said 'several' cnc machines.
Is the company AS9100 certified? If so, your Quality person is critical and consider paying for a 3rd party compliance audit. Knowingly shipping defective aerospace parts is a felony and people go to jail when they feel pressured to make a shipment. Unknowingly shipping bad parts will just get you put out of business.
Are you spec'd on specific airframes/platforms or is this custom/after-market work? If spec'd on, look at which and where each is in life-cycle. Any sole source parts? These are gold and give you lots of leverage. Since it doesnt sound like heavy engineering parts, I'll guess not. Look at the customers, just having a Boeing, NASA, GE customer relationship is worth a lot. It can take 10 years to break into one of these companies, if ever.
Look at age of equipment and the PM schedules. Consider an outside review of M&E. Most finished goods inventory is going to be old crap that will never sell. Do you work with any very expensive materials? I ran a machine shop that did lots of work for NASA and we would lose $20,000 when scrapping a blank of metal.
Im a HUGE fan of Lean, 5S and accountability to standards so I look for that or implement it. Most of the machining/fabricating business I've been in have a skilled and aging workforce so you have to be thinking succession planning. Are they comparing Quoted cost to Actual cost and tracking down inefficiencies? That and scheduling are your biggest drivers in production. Only about 1/4 of people who say they 'get' scheduling actually do.
EBITDA valuations? What revenue, AS9100, airframe parts?
If it's distressed, AS9100 and airframe parts I'm interested in being a partner.
Commercial air has been on a tear but it will cycle with the next recession. Even a few terrorists events can slow things. Private aircraft, I don't really follow that market. Military aircraft has been low demand but I don't expect any radical change, even with a war.
Good luck!
It's a smaller business with $1.4m revenue. The company is AS9100/ISO9001 certified. It is also certified as an FAA repair station and DOD vendor.
It's primarily after-market work that's done for Tier 2 contractors (rather than working directly with Boeing, NASA or GE). Is the bidding for such contracts primarily driven by price? Or are there other components that matter more so leading to more rational pricing environment?
The CNC machines are about 20 years old though seem to have been kept in good condition overall. What's the typical lifecycle for a CNC machine?
Any thoughts on the difficulty in learning G-coding for the programming of the machines?
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