Compass Strives for Really Good to Great
Compass Precision has purchased eight precision CNC machine shops in its short four-year history. It targets a very particular type of shop. To learn more, we recently spoke with CEO Gary Holcomb.
What Is Compass Looking for When It Pursues Acquisitions?
Compass is built as a collection of outstanding CNC machine shops, each with highly differentiated capabilities. So, when we evaluate add-on candidates, we are seeking companies that machine parts most shops can’t. Equally importantly, we are attracted to really good companies, ones that customers want to buy from and employees want to work for. Then, once they are in the Compass fold, we work really hard to transform those really good shops to great shops.
How Difficult is it to Find Really Good Machine Shops?
It takes a lot of work, but it can be done. So far, we have looked initially at about 1,500 shops. Of those, we investigated maybe 100, talked to perhaps 50, visited around 25, and purchased 8. We usually have several candidates in various phases of investigation and evaluation.
Why Is Your Strategy Different From Other Acquirers in Your Business?
Most firms pursuing growth-by-acquisition strategies in CNC machining are doing one of two things. The most common strategy is to buy-and-consolidate. This often involves relocating parts or all of the acquired operation elsewhere. A second common strategy is to acquire severely underperforming shops and turn them around. In both cases, lots of disruptive change occurs and people lose their jobs. We certainly have the necessary resources and talent to do either. But we don’t. For Compass, we think a better strategy for us, the customers, and the employees is to exclusively pursue really good companies and work hard collectively to make them great companies.
Is There a Simplistic Way to Describe Your Acquisition Strategy?
We seek to acquire B+/A- type precision CNC machine shops, then work diligently with our new Compass employees to make them A/A+ type shops.
Is Your Strategy Working?
We think it is. First and foremost, we have never lost a customer through transitioning to our ownership. And over time, we have gained plenty. Second, employee turnover has been next to nothing. Third, we have often encountered situations where new acquisitions lacked the financial resources to buy that great next machine. We have made those investments as part of the really-good-to-great transition. Finally, we are assisting all of our shops in getting better via ERP implementations, recruiting and hiring expertise, new business development, digital marketing, and offloading administrative functions like accounting and HR.
Is Your Strategy Sustainable Long-term?
Yes. We believe there are about 18,000 independent CNC machine shops in the US. Therefore, we are only scratching the surface in terms of the opportunity pool. Better yet, we believe our strategy applies to adjacent manufacturing processes like additive manufacturing, metal fabrication, forming and others. We are also interested in exploring the viability of integrating backwards and acquiring firms doing certain outside processes such as anodizing, painting, and plating. Finally, all of our efforts thus far have been focused domestically. Someday, we will venture out and acquire a shop located outside the US.
One Last Question – What Advice Do You Have for CNC Shop Owners Looking to Sell?
My best advice is to identify potential buyers looking for the opportunity your shop provides. If you are a high volume operation supplying cost conscious customers like automotive, look for buyers that understand and are comfortable in that environment. If you are underperforming, seek out buyers comfortable with fixing the problems. But if you are a really good shop with differentiated capabilities, call me first!
For more information about Compass and its acquisition strategy, please contact CEO Gary Holcomb directly at [email protected].