Episode 135 - Clint Bundy, Managing Director at The Bundy Group

0:00Hello everyone and welcome to a new episode of Manufacturing Matters where we talk about the technology and trends that are shaping the global manufacturing industry. Today, I'll be your host, Win Harden. It's pleasure to be with you again and I think you're really going to enjoy this show. We are lucky enough to be here with Clint Bundy, who is managing director of merger and acquisition consultancy, the Bundy Group. Clint, how are you doing this morning? Hey Win, good morning, thanks for having me on. I'm really appreciate it. I'm glad we were able to get the timing on this and find time to have a quick conversation. Because normally when we get in this, we'll just jump right into our overall industry discussion. But I do want to frame it a little bit for audience today. So if you've been in the manufacturing industry for the last 10, 15 years, then the names Allen and Brian Bolio are going to probably ring a bell with you. We probably saw a key note at a conference. They've been the principles of ITR economics, which is an economics firm that focuses pretty much exclusively on the manufacturing related industries.

1:02So they've been kind of our gurus, the guys peering into the, into the, into the all-seeing eye for the past decade plus more. And one of the things that they've been talking about at all these key notes, if you've seen them, is that they were envisioning a financial rough patch that would last several years. Initially, it was thought to be around the 2025 timeframe, pushed it out into, I think, now 2033, based on the most recent key note that I saw from Brian Bolio. And what they were at one of the many things that these, there was many sources to this issue. We've got population inversions. We've got various domestic debt issues around the world and emerging markets. And all of this kind of coming to a head is what these gentlemen are at least have been proposing. And as part of one of their suggestions to their client base, they've been saying, if you own a manufacturing related industry and you're at a position where, because so many folks in our industry, as you know, are aging out, you know, I mean, we're, there's, it's, there's certainly a growing of this. There's been a lot of new infusion of folks and talent in the manufacturing and

2:05manufacturing technology industry. But at the same time, a lot of those machine shots and those, those small and large manufacturers, they're C-suite is, and they're 50s, and they're 60s, looking to make a change. And so, the ITR economics has been talking a lot about, if you're thinking about someone, might not be a bad time. So we thought we'd go to some experts in that area and that's what led to this conversation with Clint. So Clint, if you could, with that long introduction, apologies for that, to the audience also, but tell us a little bit about Bundy Group. Yeah, no, that was great context. And thanks, Kim, for having me on today. I'm excited to be here. Yeah, just to give you a real kind of high level about Bundy Group on myself, we're a 36 year old. We use the term Beauty Investment Bank, but you can all see the term mergers and acquisitions and visory firms. It's the same thing. We were started by my father actually 36 years ago with the purpose then and what is still the purpose today of representing privately held companies in a business sale or capitol race event.

3:11So just at a very high level when a client hires us, a company, a business owner, shareholders, they're usually asking us to deliver two main outcomes for them in a business sale. And one is helping them maximize value and the second is helping them find the best fit for the company. And so we're providing information advice and options, especially in running some form of a competitive process. So for myself, you could say I kind of grew up in the business. I did have a prior life working for a larger corporate investment bank before coming back to Bundy Group in about 2008. But, you know, just manufacturing matters. Such a great title because you've got because, you know, our kind of background is very much in the industrials realm. And so when you talk about manufacturing over 36 years, we worked a lot of different types of manufacturing firms, whether it be custom manufacturing,

4:13fabrication, chemicals manufacturing, infrastructure products. And then I know we're going to talk more about advanced manufacturing and automation, which is certainly a core company to virus. But that hopefully gives you at least a little bit of color about our firm. Absolutely, absolutely. You know, it's funny because when I was working up some questions on this, you know, mainly was focusing on the acquisition component again because of the context that I started at the beginning that we're seeing some trends in that area. But don't be shy about sharing anything about raising capital. I know that's obviously something that's on a lot of folks right mine right now. A lot of CAPEX decisions were delayed, you know, over the last 18 to 24 months. And so I wouldn't be surprised at all if we're seeing an uptick in there. But that leads me to my first question, which is what are some of the biggest trends you're seeing in the industrial automation space right now related to acquisition and or capital? Yeah, good question. And really my trends will apply to both an automation, whether you're talking about the M&A side. Let's say M&A, that means a change of control of that, where a company is selling 51% or more

5:15of their equity versus a capital raise usually as not a change of control event. So that just kind of defines things. And just to give you a kind of backup a little bit, you talk about trends. So we started working in the automation and events being a factory space. Really around the time I rejoined the firm in 2008. But so really call it over 15 years, well over 15 years. And it's been really fascinating for me to watch what's happened in that time frame and the automation and events, manufacturing, sector where you've just seen a, and I feel like each year the momentum picks up even more and more. Although we've been going guns of blazing really for the past 10 years of the M&A and consolidation and investment activity. A lot of that being driven by, I use a term financial sponsor, but a lot of your listeners will know the term private equity as being the usual term that you use financial sponsors, by the way, as a term that captures more than this private equity.

6:17It can capture family offices or other institutional investors. But these are investment groups that are looking to invest in probably whole companies to acquire, to grow them both organically into M&A and then eventually resell them. And so what you've seen from a trend standpoint is these groups, they're kind of like sheep following each other. And when they all figured out how great the automation market was, one got in and before you know how you got thousands getting in and all acquiring these platforms that they're then building up to then eventually selling. And you know where you've seen that that M&A trend continue to this day is it's not just in, you know, we all know automation is a big category. It's not just in one silo, but it's in a bunch of different silos. Whether it be control systems and aggression, robotics, you know, repair services, tidal automation, equipment.

7:18Of course now we get in the AI sort of angled tidal automation. And they're all investing now and that's really, and that's good for the owners out there because it won't get some options and too frankly it increases the value of their firms. Right, right. You know, you bring up an interesting point on that if you don't mind. When we did a robotics panel at the recent A3 business form in Orlando and Jane were earlier this year and we'll put a link to that show down in the description below. One of the takeaways that came out of that robotics panel is that the robotics companies are doing a lot of acquisitions themselves and they're trying to buy the whole vertical stack. So they're looking at not just the arms but the software that's running it, possibly end effectors, AI systems that are optimized for motion control and material handling. Is there, does that fit into any one of the trends that you're seeing right now? Where that, you know, it's not just about like buying like necessarily but filling that technology yet or commercial yet.

8:20Great point that you're making and yes, and here's my kind of punch line which if I repeat this more than once in this interview, forgive me, but what we had really seen over the past, especially the past few years, among the sophisticated pool of financial sponsor and strategic, if I say the word strategic, that means an operating company, could be backed by financial sponsor, it could be publicly traded, but it's still an operating entity and the automation space it's acquiring. They are becoming more focused on being a solutions provider, whereas maybe before it's, oh, we want to have really good software. We're going to have really great hardware. We want to be a really good integrator. Now it's, no, how, because our clients are coming to us and saying, I need the outcome. I need the solution. I don't know a whole lot about this automation stuff. I'm going to hire you. I want you to deliver me the package. If you've got the proprietary tech, great.

9:22If you've got the engineering talent, great. But I think of the day I'm hiring you for an outcome. So we have seen to your point when we're seeing the emphasis more on solutions providing now than we were say, six, five, six, seven years ago. 100 percent. I wonder if that's also indicative of a maturing industry, which is part of what I attribute this interest from outside capital. Coming in, back in the day and the early automation space, you had a couple of giant companies, of course, mainly in robotics and big camera makers things of that nature. But now it just seems like it's a little bit of a different environment. Yeah, I would agree. I think also the sophisticated groups have understood where the value is. And that is to be a solutions provider. If you're delivering value, which is what a solutions provider is, then your margins should be better and you should have a lot more staying power.

10:22Right. And the customer's benefit from it, right? No more finger pointing. It's just a nice vertical solution. That's right. So when companies come to you looking for advisory guidance on possible acquisition or sales, you know, what are some of the things that are triggering that interest level, assuming we're not talking about outside financial sponsors, but Yeah, wow, good question because there could be like one of a hundred reasons why we get a call from an editor, but I'll give you some good examples. You know, an obvious one could be retirement. Like we just sold a company in St. Louis. Very good automation firm called Elaine Tech. The owner's husband and wife had built up a great company, had built a fantastic management team underneath them. That was effectively running the company. And they were just at a point where they said, you know, it's time for us to diversify our for state planning purposes.

11:25We need a diversified and this management team, they've got a lot of promise here. We need a good new partner for them. And so what we were hired to do is go run a process and find that new partner for the management team. So retirements one, it's not uncommon for us to work with owners who are not anywhere close to retirement who love what they're doing, but they say, you know, I've taken this as far as I can on my own, you know, on my own balance sheet. I know I could 2X, 3X, 5X, this company, but I need a partner that can help me do it. I cannot do it on my own. I need not only from a capital standpoint, but maybe other resources standpoint, like helping me find more talent. So that's another common one as well. Another one too is just, hey, I mean, a lot of owners these days are getting imbalance left and right from buyers. And, you know, finally, they just get enough interest that they call us and say, you know, I think I need to at least explore this. I, there's some things in my life going on that maybe make it the right time to do it,

12:29but I need to do this in a way where, you know, I don't just pick the first person to call me and go with them because frankly, that puts them in a pretty decent, not in the most advantageous situation doing that. So that's, again, another example. I could give you 100 more, but I will say one underlying thing. Is there's always, for lack of a better term, some kind of pain or need that the owner has. You know, money, we're all, we understand that selling a business requires boils down to transaction price and money and etc. But there's usually something beyond just that that's driving it. And so hopefully that gives you some good context. Absolutely. Does the old sauce still, you know, is it still ring true that the person that takes you up to 10 million may not be the one you can take you to 50 or to 100 million? There's a lot of truth to that. Here's what I would say is that they're just different needs to go from 10 to 50.

13:35It doesn't mean the team you've had in place to get your 10 can't still be there, but you're probably going to need me. Sometimes you need to have a full team change over or you just need to find ways to augment that team, which is what we see the most often is the infrastructure and team you've got in place to get you to 10. Well, hey, we think we can five access. Well, we're going to need more horsepower. So that's that's our most common situation. Now, I absolutely see that. And it seems like, you know, just as a side note, when you're going from start up to 10 million, you're focused on that value proposition and bringing that solution set to the marketplace. Once you get to that point, it seems like, especially in the C-suite, you're more concerned with human asset, catback asset. I mean, the fun, the guy who designed or the lady who designed things and made beautiful solutions, like you said, just a completely different skill set, needed to go to that next level. And I don't think I'll let you do that. If I can add to, we see a lot of engineering, oriented companies founded by engineers and their great engineers and pretty good business,

14:39good business people too. But they oftentimes insert these companies with a business mentality in mind. So it could be, hey, you've been a great CEO up to 10 million in revenue. But to get to 50 million, maybe you would be a great CEO, and we bring in somebody who's grown three companies before, up to 50, and let them deal with the strategic and work with the CFO and the financial. And you get to stay focused on what you enjoy the most, which is more the operations in engineering. Yep. Yep. No, I've seen lots of instances of that too. And I mean, I think the vast majority of the companies, especially in industrial automation space, are indeed started by engineers, and you love the technology part, the human asset management part can be a little bit of a drag sometimes, so I understand the position on that. Everybody, I just want to take a quick second and thank our sponsor. Manufacturing matters the sponsor by tech bdb marketing. They're a full service public relations and marketing agency that focuses on technology

15:42companies, especially in the energy and automation markets. They provide full service, media relations, investor relations, employer relations, full end and content development, video services, animation, full IT stack development from website, integrating with ERP system, CRM, marketing, automation systems, and they bring a whole lot of knowledge and experience about technical markets, since they've been servicing those markets for over 30 years. So if you have any questions you want to learn more, go to techbdb.com, and now let's get back to the show. So today, what makes an automation or manufacturing technology company especially attractive to investors? When you're evaluating potential acquisitions, I'm sure you got a checklist. Do you got a couple of high points on high boxes on that list? Yeah, and from our standpoint, just to refresh our listeners, we are an advisor to the owners, so ultimately if they hire us, we're not the buyer, we're there to deliver the buyers in a competitive process. But what we do like to do, and we're kind of a measure twice,

16:46kind of one sort of firm, we like to give good advice on the front end to the client, so that we know when we go to market, take a company to market, degenerate, enter some buyers that use the golf analogy, we're lined up on the T-box, we've done some practice swings, and we like our eyes, we're going to crank down the fairway 300 yards and not put it off into the woods. That would be a nice surprise. I'd like to try that one time. In my real golf game, I do put in the woods a lot, but in our, in our represent clients, we try not to, and we've got, and you know, it is kind of boils down to the thing you're addressing, which is preparation, and this is why a lot of times we talk to companies sometimes for years before they hire us, so we can give them advice. But you know, my, I'm going to get kind of four megalogues of the stool that we look at, and that's stability, profitability, growth, and scale. So, stability is what I like to usually think of as some kind of hopefully repeatability with the client base and revenue, recurring or recurring like revenue,

17:51stable industries, they're, they're focused on revenue that's fairly stable, profitable, we like to see, you know, goods, you know, we look at EBITDA margins, your listeners may know that's term on it, when I'm not here familiar with it, but it's earnings before interest expense, taxes, depreciation, memorization, and you could have some one time and extra near expenses that add to that. So, we look at EBITDA margins and like to see those hit certain benchmarks, growth, that have a history of past growth that very importantly can the, can the management team talk about future growth? Because ultimately, a buyer's buying the future and not buying the past, so that it can, and we spent a lot of time working with a client in the preparation phase about talking about that growth piece, and even financial modeling that out. So, we can articulate that, and that can make a big difference on driving value, and then the final one is scale is, is it, is scale's relative term, mentally, does it have some real size to it? I mean, there's a

18:52difference between a startup company and a company doing 20 in revenue, and frankly, a startup company is going to have a lot more difficulty getting a lot of buyer interest, first one that's saying do a 20 in revenue and four in EBITDA. So, those are my kind of four big levels, four big legs of the stool, but within that you've got other key things like the management teams critical, the industries that the companies focused on, are they focused on something like the data center market or the critical infrastructure market, those are great, strong, resilient, growing industries, or they focus on automotive, which could be a little more volatile. So, there are a whole lot more layers on you we could go into if we want. Absolutely, absolutely. Are you mainly, so you're mainly consulting on the cell side then for the, okay? Do you like to have my interests aligned with the owners, so that when they get, when they get a big win that we're happy for them and with them? Yeah, yeah. So, you're hoping them prepare them to

19:54get their narrative and make, and you know, how to talk and understand their own organizational structure. Do you apply, I mean, let's say that I'm selling my company and, you know, so you're helping me and you've got me get my narrative, do we apply that same analysis to the potential buyers, too? I mean, especially if I'm concerned about my employees still having a place in the organization going forward, you know, I mean, I know that's been a, I'm making a concern with, you know, I get those calls all the time too, about folks wanting to, to acquire tech, be to be marketing, which is the main sponsor of manufacturing matters. But anyway, do you apply that same analysis to the other side? We do. I would tell you, this is the benefit to an owner while we're big believers. If you're going to be a seller or one preparer, don't just wake up one day and say, I'm going to get a sale tomorrow. So prepare for that, to go run a process, which is, that means having good advisors in place, whether it be an investment banking advisor, transaction accountant, legal, have advisors seeking, look at options, because some owners, I mean, they get so many calls and,

20:58well, you know what, the first, next call to call us in, I'm just going to take that one. Well, okay, great that you got an imbalance. Congratulations. That does not mean that's actually the best buyer. Well, how are you going to know who the best buyer is? Well, that's by interviewing a range of buyers in a structure process, learning about, I would call it reverse due diligence. The buyer is going to do diligence on your firm, but you're going to reverse due diligence with your advisors on them and interview. So ultimately, you can select, hey, who's the best fit here? Who's going to pay me the most? Yes, that's critical, but who's also the best fit? And by the way, if you do your job right, use you the group that's going to pay the most, as usually there's heaven exceptions, but as usually the best fit as well. Well, it's nice if those two needs a line. So, so we talked about, you know, how we go through the analysis. What are some of the pitfalls? What are the things that derail a deal from an industrial automation perspective? Yeah, I'm going to break it out into two camps. If an owner hasn't prepared and they sort of

22:00take that approach, if I'm just going to take whoever calls me, then there are a bunch of pitfalls there. A lot of what potential for wasted time to be honest with you, which, unfortunately, you'll know the front end, but that could be everything from the company's financials are not as strong as the owner originally thought. It could be a buyer retray, buyer gives them an offer at the front end. I'm going to pay you this and then buyer spends 30, 60, 90 days doing due diligence, comes back and says, actually, I'm going to pay a 30% less than that, which by the way, just about everybody out there is going to try that tactic if they have the opportunity to, you know, it could be that we're more easily leaks in the market about a sale because it's again, just not running as a structure fashion. So if the owner is a sort of, then we're all more of a fly by night operation on it. There are a lot more risks. If they've prepared, if they've had advisors in place, if they've done a sell side quality of earnings report, then now you're, there's still risk. Of course,

23:06there's no guarantees until the day of the old closes, but the risks have gone down a lie. And now you're probably your biggest risk in that situation unless the owner just one day wakes up and says, actually, I just realized I don't want to do anything that that could happen. But, you know, absent that your only real risk is going to be what we will call like in a material adverse change, which could be like the market, like you have a pandemic that nobody anticipated that absolutely crashes financials or an industry that that the company works in overnight has a sudden change in direction. We don't see material adverse changes happen all of that often. But of course, the pandemic is one example where it did impact some. It's really not not really in the automation space. We had several deals in market then that we're fine, but a couple other industries that impacted. Yeah, no, I could see that in black swan events definitely do happen, you know, and it's funny because it seems like we might be in an age of unanticipated events like that. As AI finds

24:09its place, you know, thinking mainly about software programming and we have a lot of programmers on our staff and they're completely changing. I've got other clients who used to put one programmer with an account executive say for implementing an ERP system and now they can use one programmer to service four different account managers. So the world's certainly changing. With that in mind, what do you see as within the manufacturing industry at large? What are some bright spots? We talked about data centers, which definitely connects to AI and I was just mentioning that and robotics has been strong, but what are you seeing in terms of some bright spots the next five years? Yeah, I think it's just an exciting landscape out there. I feel like most donors we encounter are certainly in the advanced manufacturing automation or progressive in thinking. They are trying to figure out how do we utilize AI in again and becoming a better solutions provider.

25:13It's a thing we talk a lot about most companies we represent. We're kind of hammering them. These guys, they are a solutions provider whether they're bread and butter system integration or flow sensor manufacturing or cybersecurity at the end of the day, they're providing solutions. So there's not, I wouldn't say there's just one that I would pinpoint and say, boy, this is the sub-segment of automation to be excited about because there's so many, but automated material handling is another one, machine visions another one, and I will say that the M&A community, the buyers, financial sponsors, strategic, they are looking to invest and acquire across the landscape of all of those sub-segment. So if you're an owner, stay on top of the trends, I know you've got a good audience listening to your podcast so they need to keep doing that because they're going to get ready to intel. We also have some good information we put out through our

26:14website and podcasts and stay educated and that'll help you know where to build value. Before I ask the last question, Clint, tell us, where is your podcast? Where can folks find more info? Yeah, our podcast is called Bundy Group Insights and our website is bundygroup.com, which we do have a sub-section for automation where they can see content that we've delivered for that. Awesome. Well, we're going to give them some quick click notes because I want to ask you one more question before I let you get back to helping folks make more money and be more efficient in their solution builds. But if you're the founder of an industrial automation or robotics company today and you want to sell them the next five years, what's that one piece of advice you want to give that person? Yeah, preparation. And preparation, I know that's a high-level suggestion, but you know, I would go back to my four legs of the store's stability, profitability, growth and scale. And within that, I always like to say that ultimately M&A, when it comes time to do either a capital raise or a business sale event,

27:18it kind of becomes a war over the numbers. I know that's kind of sounds draconian and I don't mean that too, but what that means is that the better level of data and financials that you as a company have, that it means that your value will go up because buyers are inherently, they like to have their cake and eat it too. They are anti-risk and high reward. We all think high risk high reward. Well, they want low risk high reward and the more granularity of data, financials that you have, the better. So to put a plug in, think about a good fractional or full-time CFO. A good hire in that department can be worth their weight in gold. And so that's one of a hundred pieces of advice I could give when. Well, that's an excuse. I think that's most specific and very valuable. You know, it's funny because you were talking about the four pillars, and I was thinking, well, there's one foundation that supports the four pillars, which is get good advisors. You know, and the whole time we were thinking about this, it really is about

28:23maximizing profit cash flow. If you're going for a sale and you need to do it for a number of years in a perfect world before you go speaking with buyers so that you can extract the most value for the company and the transaction. So I think that CFO comment is totally on target. And again, don't forget guys and ladies out there. If you're looking to make a move with your company, make sure you get those good advisors and maybe check with Clint over at the Bundy Group. So, Clint, thanks a million for joining us today. It's really been a pleasure. I hope you've had a good time on the show today. And when this was great, thanks much. I really do appreciate it. Great, great. I look forward some day out to come and be on your show. I look forward to that day. And in the meantime, if anyone has any questions for Clint, or you know where to go, Clint, it was bundygroup.com, correct? That's right. Yeah. All right. Or pose any of your questions directly here at the podcast or any of our podcast platforms, wherever you get your favorite shows, we'll make sure we get those questions off to Clint. I'm sure you can find them on LinkedIn and a bunch of other places. If in the meantime, if you want to check out that old robotics panel that I was talking about, it's

29:25not that old, just about a month old, I guess at this point, you can go to manufacturing-matters.com. And you can see all of our past episodes as well as find us on all of your favorite podcast platforms. So until our next episode, thanks for joining us. And Clint, it's been a pleasure. We'll see you soon. Thanks, Clint.