Analyzing Manufacturing facilities in Private Equity

Paladin:

PM me for info and we can talk more. Here's some flow of consciousness; - I look for signage, metrics, charts, graphs, data. No factory is great without it and it points to universally beneficial programs like 5S, Lean and 6 Sigma. - Look for bottlenecks, those are where value is wasted and the opportunities are. - Watch the feet, work should flow to the worker, not the worker to the work. If the feet are moving you have inefficiencies. - Close your eyes and listen for rhythms and patterns, they signal flow and tempo which signals proper scheduling. - Scheduling is probably the biggest oppty for improvement. How to have every piece of capital equipment fully utilized at every minute of the week? Look at utilization. - Is Direct Labor fully variable, it rarely is but should be. There are a million excuses but they are all unacceptable. - Track your working capital items through the plant, where are there bottlenecks or wastes? - Waste and scrap. - Are they FDA compliant? Interview who's in charge of that, are the lights on upstairs? Review the detail and completeness of their files. Any other regulatory issues (environmental). - Look for engaged workers, smiles, concern for workplace, etc. vs. dissent. - Cleanliness. A dirty factory cannot be excellent. - Performance standards, do hey know what every machine and person should produce per hour? Are they measuring and managing towards that standard? - Accountability, are they turning over the bad apples (pun). - By product, are they monetizing any by product that might have value? - I do time motion studies as I move through the facility, trying to find bottlenecks. - Are they keeping equipment running during breaks? They should be scheduling split shifts for breaks. - Measure both incurred time and consumed time, the difference is waste (lean 101)

Good luck to you!

This is fucking awesome - thank you. One item I'd like to add is I ALWAYS use the bathroom in a plant. If it's filthy, to your point, it CANNOT be a good facility and shows how much people care/are treated. I also look for how engaging the workers are. If I'm walking by and they put their head down, it shows.

Whenever people hear FIG they automatically assume you will never understand:

-DCF models -LBO models -Non-FIG comps -Working capital

So time to prove the opposite. Try get your hands on sector specific research reports (industry primers!) and just figure this out. Cash mgmt really is a critical item once you leave the realms of FIG (was at least for me). Look at the usuals like Damodarans site and macabacus plus get analyst training materials from folks in relevant sector groups.

is this in philly?

Think about inventory turnover, capex associated with the manufacturing based industry, who a company's clients are and what competitive advantage it has as an OEM over another competitor involved in the same industry - does the company differentiate itself based on a highly sophisticated technology employed in the manufacturing process that just cannot be replicated? High replacement value for assets owned?, High D&A and obviously macro trends in the industry and demand for products produced which may/may not be directly correlated with the economic cycle, check seasonality in working capital, vendor deposits, check distribution channels the company employs to get its products out to the market- does it have a strong internal/external sales force? what are the growth opportunities for the business? How does the outsourcing model impact its own/competitor margins? Quality standards for the product produced? What other IP does the company possess? The focus here on gross margins is as important as that on EBITDA margins to be able to understand COGS trends. what is the commodity/raw material related exposure? are they able to pass on price increases for their raw material to their customers or does it eat into their own margins.

i'm just thinking out loud here to be honest and this is just a random list of themes that popped up in my head when thinking of a manufacturing business. I will caveat that I haven't done a whole lot of work on the manufacturing side so take all this with a grain of salt. Hope it helps. All the best.

I never worked in a FIG team in a bank but as a consultant with a lot of transaction exposure in FIG. I don't know how training works for FIG analysts.

Anyway, a lot of people that never touched FIG really seem to think that as soon as you work on banks, those parts of your brain that will make you understand working capital are surgically removed by HR. Just another recruiting market inefficiency in my view -- I think FIG is actually a good starting point as FIG valuation is quite complex (cf. what happened in the markets since 2007...).