Found a distressed manufacturing business to purchase for around 900K

Associate 2 in PE - LBOs

Headline: “Aspiring Young ETA Executive Finds Business with Ample Growth Opportunities. One Problem: It Doesn’t Make Money…”

But that is the opportunity. If it made money, their would not be an opportunity. 

WSRaider

More a response to your prior post that I couldn’t comment on:

We do this - it makes sense but it’ll be impossible to raise a fund around without a track record. LLC might be the right path.

You will need enough technical and operational savvy in your team to convince others than this is something that can be implemented easily with much risk, and definitely don’t just assume some random robotics-aas company will do it well. If they do they’ll try to extract much of the efficiency gains from you. Sounds like you’re early on that but nothing that hunger and drive can’t work out. I would map out the key production processes and costs, and clearly articulate which could benefit from automation and show how it transforms the bottom line.

We’ve been building out a similar strategy in a much bigger vertical (think data centers) but been hard to find the right people to execute

$1mm is way too small for our fund but could do some PA if you pull the pieces together. Bigger issue is whether TAM is eventually big enough. Grinding and welding stuff is a big space but if it’s highly customized for some specialty niche product line that is very localized it might not be interesting enough

Another idea maybe easier for you is probably using AI tools not robotics in automation for services companies.

Thank you for your post!

This opportunity is in heavy-industry hydraulic cylinder manufacturing, a sector with a large TAM and significant growth potential, particularly given ongoing demand from drilling, fracking, mining, and steel mills.

I am planning to partner with an established firm. There are multiple firms already in this space, and some international companies are actively looking to enter the U.S. market, which creates additional partnership opportunities.

I also bring experience in robotics integration—including costs, implementation, and programming. In fact, the mark-up that robotic integrators charge is quite reasonable for the value they provide. I already have a clear roadmap for automation: starting with machine tending (which is straightforward to automate), followed by grinding, and eventually welding. Several investor-backed startups in these areas are currently offering below-market solutions, making adoption even more accessible.

If I find the right industry partner, I think I'd do it. The current owner is motivated to sell, is open to financing, and has been running the company without any automation, according to the broker—leaving significant upside potential.

Thank you again! I hope I will find a partner!

No wonder BMW isn't making money like they used to...they can't ship cars over 2,000 LBS lmao

VP in PE - LBOs

Think about the type of business that makes a good classic distressed investment: good business with a bad balance sheet.  Now ask yourself why this one only makes "very little net income".  Sounds like the cost structure is one problem, and this can potentially be addressed through automation, but automation is most applicable to high volume low mix manufacturing, not high mix low volume which it sounds like this is closer to if there's a lot of customization.  And why haven't they already pursued automation; that's not novel - automation initiatives are one of those things that sounds great as an IC memo bullet but is hard to do in practice even for a very experienced ops guy.  Your material inputs are also a lot of commodity exposed metal and possible tariff headwinds.  I would also question the assumption that you have a competitive moat because these heavy components can't be shipped; a lot of heavy equipment you see at construction sites, mines, etc. is manufactured overseas (Korea, Japan) where they're buying their hydraulic cylinders locally.  Even if there's demand from US OEMs, the shipping cost alone might not be enough to overcome the lower cost suppliers, especially if there's a lot of labor content in the cost structure (good welders in Malaysia command a premium but they're still well under half what they'd cost here) and especially if your inputs are structurally more expensive due to steel tariffs.  I'm guessing your customers (big equipment OEMs) also have a lot of leverage given their concentration; unless you have a ton of proprietary tech/value-add (unlikely), those types of customers can be a nightmare.  Make sure you're really confident in the growth outlook - I'd be very very surprised if it's much above GDP (if that).  Finally, unless there's a big aftermarket component which it doesn't sound like there is (I could be wrong, never looked at this category before) you have a ton of rates/capex budget exposure which can result in significant demand/earnings swings.  All to say, go in with your eyes wide open - there may be hard-to-fix reasons why the business is distressed.  Don't overpay, go in with a plan and be very careful with leverage.  Good luck.

Oh thank you so much for this information. Looking at what everyone here has said, it may be a very bad deal. 

I am speaking to a well-reputed manufacturer to see if they want to join on this. If they say no, I'd leave. It means that it is a bad deal. 

I know that their are new AI-based automation robots that are good for high-mix, low volume. Some of these can get brought for below market rates because these companies are investor-funded. However, that may not be enough. 

I will see what the company says. It looks like a bad deal tbh. Thank you all so much!

VP in PE - LBOs

Think about the type of business that makes a good classic distressed investment: good business with a bad balance sheet.  Now ask yourself why this one only makes "very little net income".  Sounds like the cost structure is one problem, and this can potentially be addressed through automation, but automation is most applicable to high volume low mix manufacturing, not high mix low volume which it sounds like this is closer to if there's a lot of customization.  And why haven't they already pursued automation; that's not novel - automation initiatives are one of those things that sounds great as an IC memo bullet but is hard to do in practice even for a very experienced ops guy.  Your material inputs are also a lot of commodity exposed metal and possible tariff headwinds.  I would also question the assumption that you have a competitive moat because these heavy components can't be shipped; a lot of heavy equipment you see at construction sites, mines, etc. is manufactured overseas (Korea, Japan) where they're buying their hydraulic cylinders locally.  Even if there's demand from US OEMs, the shipping cost alone might not be enough to overcome the lower cost suppliers, especially if there's a lot of labor content in the cost structure (good welders in Malaysia command a premium but they're still well under half what they'd cost here) and especially if your inputs are structurally more expensive due to steel tariffs.  I'm guessing your customers (big equipment OEMs) also have a lot of leverage given their concentration; unless you have a ton of proprietary tech/value-add (unlikely), those types of customers can be a nightmare.  Make sure you're really confident in the growth outlook - I'd be very very surprised if it's much above GDP (if that).  Finally, unless there's a big aftermarket component which it doesn't sound like there is (I could be wrong, never looked at this category before) you have a ton of rates/capex budget exposure which can result in significant demand/earnings swings.  All to say, go in with your eyes wide open - there may be hard-to-fix reasons why the business is distressed.  Don't overpay, go in with a plan and be very careful with leverage.  Good luck.

Thank you again. I spoke to a large manufacturer and you are right, it is a bad business to buy. No hope. Thank you!

Fuhnance

I wish WSO had more threads like this. Very informative and interesting to read people's perspectives. Thanks for posting OP!

I spoke to a large manufacturer in this area, and the deal is not worth it. Too much risk with competition from Asia!

You thought this was remotely interesting? I’m sorry, but from his posts OP is clearly an idiot with no clue what he’s doing.

I’m not trashing entrepreneurship or the path less traveled. There have been very interesting posts about entrepreneurship on WSO in the past. But this is not one of them.

m_1

I do distressed consumer including consumer that owns manufacturing.

Like the poster above said, the problem here is structurally bad unit economics. Personally, I would not want to do it. It's so small that cutting will result in...nothing left! 

So you don't have much "clay" to mold your co with.

Oh thank you. Yes, I spoke with a manufacturer in this area and he said the exact same. 

I have a question. What about a larger well-run service-based manufacturer with very good financials?

I found one such plant, and it has 0 automation. I know that welding, grinding and machine tending can all easily be automated. I know several startups that would work with me for below-market terms because of the massive VC funding they have. 

I am thinking of working to purchase this plant, and improving it via automation. I would also implement new software. I know the cost savings would be solid. Problem is, how do I find people who want to collaborate? Thank you so much!