Audra:
Now we can transition into what this company does and how did you finance it? And why did this company appeal to you?
Bob:
It appealed to me because it had a strong base of sales. Even though there was high customer concentration, there was a long sales history across a diverse product portfolio. That was a good starting point. Also there were about 46 employees and so I’m thinking I’m just going to not upset the applecart. I’ll buy this business and run it and incrementally grow over time by just making some tweaks.
That was definitely not what happened. First, let’s talk about financing. I started with the SBA. This purchase was tailor-made for the SBA, because their 504 loan is geared towards equipment and equipment is what this place had in spades. We actually ended up doing 90% financing with the 504. Because I was from outside the industry the bank/SBA said that I’d need a partner from inside the industry. Had I known I could push back, I would have. In February 2022, I bought out the minority partners.
Then, two other things happened to challenge our survival. One was COVID. That caused a big dip in our revenues and profits and had it not been for PPP I’m not sure we’d have another source of financing to bridge pre- and post-COVID. On top of that, one of our major customers also does manufacturing in Malaysia, Singapore, and China. They’re always looking to squeeze more value capture. But it is a zero sum game—we’re losing and they’re winning. They moved some production away from us, which probably made total sense from a broad macroeconomic perspective, but it was challenging to lose that steady business.
This double whammy caused us to go from 46 to 30 people to just keep our heads above water. The trough in the dip was early 2021. But by fall of 2021 there was this inflection point where orders started coming in at nearly double the trend. Also during the COVID slowdown, we got our aerospace certification and decided to attack that market.
The good news is that downsizing allowed us to build a new culture and upgrade skills. Today we’re at 54 people and now dealing a lot more with aerospace. In late 2021 we picked up the pace and started to be able to handle the increased backlog, and we had more customers. Today we are making about 800 distinct part numbers in a given year; which is a lot of product diversity. We also rebuilt the quality department to better match our customer requirements.
This is a labor and capital intensive business. We did buy machines, but we made sure new machines were highly automated, capable of running through the night. We did that so we could fill orders and stay productive even after normal work hours.
Audra:
So the SBA also kind of forced you into a partnership that you had to undo. How were you able to buy them out especially during COVID and associated customer challenges?
Bob:
Good question. I ended up doing a 504 refinance, which a lot of banks don’t even know can happen. Enterprise Bank in Pittsburgh is solely a commercial bank with no retail presence and only one office location. One of their lenders used to work for the SBA, so he knows their programs inside out. He was way beyond most of the bankers with respect to SBA expertise. The SBA route usually takes longer than conventional bank financing. I was able to draw on the company line of credit to bridge the gap and get the minority partners paid out before the SBA process was completed and the loan closed.
Audra:
You mentioned earlier on your son taking over the business - was this always the plan? Did you bring on any other key employees to help with the turnaround?
Bob:
I asked the question - what do we need that we don’t have? Sales and engineering were two big things. I hired my high school friend who’s a Penn State mechanical engineering grad whom I have known since we were 14 years old. Bobby, my son, worked at Deloitte Consulting, has his master’s from CMU, and has a lot of good connections. Bobby’s work in aerospace and defense manufacturing made him a natural f it to come in here and expand our base.
Audra:
You had hired nearly double your low-point workforce while still coming out of COVID. How in the world did you do that?
Bob:
I give all the credit to the management team. They have been diligent and creative in how they go about selecting and attracting top talent. Bobby is a natural networker and his hiring activities remind me of the sage advice, “Dig the well before you get thirsty.” Bobby is cultivating relationships well before the hiring process begins.
Audra:
You had M&A and transition experience coming into this, not to mention you are a CPA and had been a banker. Were there any surprises or learnings for you?
Bob:
One of the keys to making this acquisition possible was the ability to finance so much with the SBA. That was just huge. Also, one of the biggest mistakes you can make is to try and do it all yourself. No one person has that kind of knowledge, especially with a big company. It really takes a team effort to get all the skills necessary to run a business properly. It’s figuring out what those are, and then making sure you’ve got that covered. I have seen owners all along the spectrum from doing everything alone to total delegation. There is wisdom and tremendous scalability when you share the load and make sure all the necessary skills are covered. One of my bosses used to say, “Hire good people and get out of their way.” You grow way much faster when you’ve got a whole team doing their thing. At Chick, we have leads in sales, engineering, production, quality, technology, and finance. We meet every Thursday to go over what needs to be worked on and then I get out of the way.
Audra:
Thank you Bob for sharing your story. I just really appreciate you giving us the time but also doing what you did, you know, stepping in and taking over a company that’s now growing and doing your part and making sure that US manufacturing is alive and well.
Bob:
Yes. It feels good to share too. Thank you for asking.
