Onshoring trends in the industrial manufacturing space and company proprietors seeking retirement are driving PE appetite to make deals in the sector, Mike Burke, Sky Peak Capital managing partner, told PE Hub.
The New England-based private equity firm said it had formed Excelus Manufacturing Solutions, a holding company, as it announced the acquisition of Hicks Machine, a Walpole, New Hampshire-based precision machine shop earlier this week. Hicks Machine is a provider of tight tolerance, precision machining services, founded more than 70 years ago.
Excelus also includes Jarvis Machine, another New England-based company acquired by Sky Peak earlier this year. Excelus will focus on precision manufacturing, but its growth opportunities will target additional machining capabilities as well as sheet metal, fabrication and additive manufacturing, officials said.
There is an onshoring trend that is pushing up the domestic market, Burke said. The world suffered a snarled global supply chain at the height of the covid pandemic that forced many to scramble for domestic suppliers, shifting against the decades-long onshoring trend.
“What we have seen from our customers in the market is not only reshoring to the US or North America but reshoring regionally too,” said Burke. Compared to foreign suppliers, where movement of goods was slowed down heavily, he said: “We try to be nimble and allow our customers some flexibility whereas when they are dealing with overseas suppliers, they face a longer lead time – the process is more rigid.”
Even though there is a cost advantage with overseas procurement, “customers are realizing there is a tradeoff between cost and certainty of delivering high-quality products on time,” Burke said.
With Excelus, the firm is targeting end markets and customers that require a US supplier base, such as the Department of Defense and the Space Force.
Although a difficult geopolitical environment will likely put pressure on the industrial manufacturing sector, Burke said most of the firm’s raw materials are sourced in the US. “Obviously, things going on overseas affect the global market and pricing, but it doesn’t necessarily affect the procurement of the raw materials as we don’t procure material internationally,” he said.
Most of Sky Park’s targeted companies for growth are founder-led.
“Much of the machining and fabrication is done by shops that were started 30, 40 or 50 years ago and a lot of these founders and owners are transitioning into retirement, such that it’s putting additional stress on the supply chain at a time when the demand for services is as high as it’s ever been,” he said.
Burke is also looking forward to partnering with universities to tap into research and new innovations that he hopes will spur the renaissance of US manufacturing.
“We are going to continue to do acquisitions as well as look to partner with top universities in the northeast for top-tier engineering talent so that we can continue to be on the leading edge for our customers and focus on the technologies of tomorrow,” he said.
Turning to the macroeconomic environment, Burke said his firm is devising ways to insulate the business via remedies such as inculcating the effects into capital budgeting or deal structures. “It’s certainly something that we keep an eye on,” he said, “but it’s something that we plan for and it’s not going to slow down what we are doing because our customers rely on us to be a solution provider.”