American production has a problem of private capital

Private capital appears to be a natural minister for increasing needs to small and medium enterprises for growth and redemption of capital. But there is a problem.

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Owners of babys’ pines of small and medium enterprise companies, which covers about 98% of the US industryThey retire to retire in driva, with a generation X, you are not lagging behind. Those without relatives or partners who take companies must find customers so they can go out. Private capital investors appear to be a natural response. Unfortunately, there is a critical distrust of PE among industrial owners.

Matt Guse is the President Ms. Processing In Augusta, Visconsin, a family owned by a mechanical stores established by his father in 1986. The author of a new book Ms. Machine Processing: Production Story, Gusa posted Article on LinkedIn Last week, giving one reason for that great level of distrust among the owners who want to sell.

Currently, the emptiness in production is mainly left under the carpet – the right termination of the connection between customers and the seller moving the price. Almost every week I hear from private capital companies or customers who circulate production companies, entering with their books. But let’s be honest: Most customers still bring business owners as they teach them a favor, throwing the same tired 2K-4X multiple, assuming owners are desperate. This attitude is completely lacking points.

Production owners of the company do not only sell machinery and real estate. The line sets decades of hard work, community and identity. These are their legacies, not just another transaction to check the spreadsheet. The treatment of these contracts on the cold, purely financial moves ignores everything that actors in the first place actually do.

There is a much deeper level of distrust that dates back to return while Ms. processing was nearby. The veteran and the author of the supply chain Jeff Leimimbach explained that in his book since the beginning of this year, Broken Supply Chains: How Financial Engineering Is Sakery Production and Complex Travel to Resistance.

Imagine a family owned family store 70 years, with 800 employees and solid reputations in the air supply chain. A private company for capital decides to buy it, placing only 30% money and lending rest. Then they transfer that debt to the company’s books. Overnight is the once stable manufacturer buried under millions in loans that never requested. Instead of focusing on growing or improvement, its main priority pays debt.

Private capital likes this setting because it is enhanced by their potential profit. If only 30% of the purchase price, but leave with 100% winnings, their return that implies a company that assumes the company. If it doesn’t do that? Their risk is limited to that 30%, while banks and bond owners eat losses. This structure of risk awards encourages daring, sometimes reckless decisions. And when this way of thinking is spreading in industries, risks stop being individual – become systemic.

Industrial companies are uniquely intense. For purchase and installation of production equipment and systems, heavy doses of cash are required. They then need during the high infusion of capital to maintain the productive capacity of these systems over time to replace the main equipment when reaching the end of its useful century and to invest in additional production capacities to allow the job to increase.

It seems that the total financing of production operations sound. However, the decay between the production owners and PE is the one who becomes a bigger challenge.

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Private capital searches often not only predict the necessary permanent infusions of capital, but they are also routinely structured to require regular dividends that could also return and invest and invest and invest and invest and be invested. Leimbach explained what was happening in that case.

The sales visit from private capital sounds impressive. They say “modernize” operations will find “hidden value”, and improve “efficiency”. But behind Buzzzdords is a much simpler goal: fast cash. Most private companies in equity works at a tight time tray – usually 3 to 7 years. This means that they need to buy, restructure and resell company in that short window, ideally with great profit. There is no reason to think about what happens for 10 or 15 years down the road. The pressure is always in the short term.

And it is a serious problem of production. These companies succeed on long time deadlines – planning and investments in the next decade, not the next quarter. They need time to train workers, a machine for upgrading and developing new products. Private capital can’t wait for that long. So corners are cut. The equipment upgrades are disposed of. Maintenance has been postponed. Engineering and training teams are lowered. Instead of being part of a healthy, long-term system, the company becomes a means of acquiring fast profits.

The production of the Joint Community of SMEs is huge, but networks in their various verticals are narrow, so many horror stories like these companies are devastated by poor investment philosophies quickly spread among the owners. The result, as he pointed out the butt, can be terrible.

Here’s a story that is holding with me: I had a friend who built his business from zero, pouring everything he had in it, but he had longed up to find a skillful help to finally close the door and everything went down. Before closing, he gave me his customer list for his customers to worry – but what a loss. It was not only his loss; The whole community lost something special. Felt like a missed opportunity. If there was a customer who really valued what he built and wanted to keep it alive, maybe that story would have a better end.

Such a kind of break-up in a business environment could not come to the even worse. “The opportunity is huge,” he told me a good thing in the interview. “There is an increasing need for domestic production capabilities, and a growing pool of owners who want to go out. We need to solve the problem and fast.”

I was looking for a contribution from several representatives on the sand equation for this story, but no one would talk to me on the records. Both Guse and Leimbach admit that, however, that the horror of stories are not the whole image. “I know there are good practices in private capital companies,” Leimbach said in recent appearance on my Production conversations Web show and podcast. Certainly, the fact that most companies can get funding that needs to finance their business and growth in progress, says there are a lot of things that work right.

However, the need for changes and remains and the butt offered its solutions.

So, what’s the real victory? Customers who invest in actual relationships respect the founders, offer the right value (sometimes even paying 7k multiple for real business), and focusing on partnership does not only create a company. They earn loyalty, inheritant heritage and protection of culture that made the business great. Sellers can see that their life job continues and grows, not just to wipe. Employees and customers receive stability and vision. And the whole world of production becomes stronger.

If you are a customer, reach early and ask the owners in which the legacy is most things. If you own, don’t be afraid to ask customers how to protect your culture and what their real plans for your people and your customers. That’s how the best deals started.

It’s time to move past the old way to do it. We make the sale of a company not only the end, but the beginning of something bigger – the future where the sellers feel proud and protected, where the culture they have built, and where the new owners are to enter real purpose. This production deserves.