In this episode of Manufacturing Matters, host Winn Hardin sits down with Clint Bundy, managing director of the Bundy Group, to pull back the curtain on the world of mergers, acquisitions, and capital raising within the industrial automation sector. As the manufacturing industry faces a “graying” C-suite and shifting economic forecasts, Bundy provides a masterclass on how business owners can navigate these high-stakes transitions.

Winn Hardin: [00:00:02] Hello 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, Winn Hardin. It’s a pleasure to be with you again. And I think you’re really going to enjoy the 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?

Clint Bundy: [00:00:24] Hey, Winn. Good morning. Thanks for having me on.

Winn Hardin: [00:00:26] I 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 our audience today. So if you’ve been in the manufacturing industry for the last 10, 15 years, then the names Alan and Brian Beaulieu are going to probably ring a bell with you. You probably saw a keynote at a conference. They’ve been the principals of ITR Economics, which is an economics firm that focuses pretty much exclusively on the manufacturing-related industries. So they’ve been kind of our gurus, the guys peering 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 keynotes 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 time frame. Pushed it out to I think now 2033, based on the most recent keynote that I saw from Brian Beaulieu. Many sources to this issue. We’ve got population inversions. We’ve got various domestic debt issues around the world in emerging markets. And all of this kind of coming to a head is what these gentlemen 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 Clint, are aging out. There’s certainly a graying of this. There’s been a lot of new infusion folks and talent in the manufacturing and manufacturing technology industry. But at the same time, a lot of those machine shops and those small and large manufacturers, their C-suite is in their 50s and their 60s, looking to make a change. And so ITR Economics has been talking a lot about if you’re thinking about selling, it 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.

Clint Bundy: [00:02:30] That was great context. And thanks, Winn, for having me on today. I’m excited to be here. Just to give you a real kind of high-level about Bundy Group. We’re a 36-year-old — we use the term “investment bank,” but you can also use the term “mergers and acquisitions advisory firm.” 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 capital-raise event. So just at a very high level, when a client hires us, a company, a business, 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. 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 Manufacturing Matters is such a great title because our background is very much in the industrial realm. And so when you talk about manufacturing, over 36 years we worked with a lot of different types of manufacturing firms, whether it be custom manufacturing, fabrication, chemicals manufacturing, infrastructure, products. And then I know we’re going to talk more about advanced manufacturing and automation, which is certainly a core competence of ours, but that hopefully gives you at least a little bit of color about our firm.

Winn Hardin: [00:04:24] Absolutely, absolutely. You know, it’s funny because when I was working up some questions on this, I 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’ mind right now. A lot of CapEx decisions were delayed over the last 18 to 24 months, so I wouldn’t be surprised at all if we’re seeing an uptick 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?

Clint Bundy: [00:04:59] Yeah. Good question. And really my trends will apply to both in automation, whether you’re talking about the M&A side, let’s say M&A. That means a change-in-control event, where a company is selling 51% or more of their equity, versus a capital raise usually is not a change-of-control event. So that just kind of defines things. And just to back up a little bit. When talks about trends. So we started working in the automation and advanced manufacturing space really around the time I rejoined the firm in 2008, 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 advanced manufacturing sector, where you’ve just seen, and I feel like each year the momentum picks up even more and more, although we’ve been going guns blazing really for the past 10 years of M&A and consolidation and investment activity, a lot of that being driven by, I use the term “financial sponsor,” but a lot of your listeners will know the term “private equity” as being the usual term that’s used. “Financial sponsors,” by the way, is a term that captures more than just private equity.

Clint Bundy: [00:06:13] It can capture family offices or other institutional investors. But these are investment groups that are looking to invest in privately held companies to acquire, to grow them both organically and through M&A and then eventually resell them. And so what you’ve seen from a trend standpoint is these groups, they’re like sheep following each other. And when they all figure out how great the automation market was, one got in, and before you know it, you got thousands getting in and all acquiring these platforms that they’re then building up to then eventually sell and where are you seeing that M&A trend continue to this day is it’s not just in — 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 integration, robotics, repair services, automation equipment. Of course, now we get into the AI sort of angle tied automation, and they’re all investing now, and that’s good for the owners out there because it, one, gives them options and, two, frankly, it increases the value of their firms.

Winn Hardin: [00:07:27] 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 Forum in Orlando in January, 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 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. Does that fit into any one of the trends that you’re seeing right now where it’s not just about buying like necessarily but filling that technology gap or commercial gap.

Clint Bundy: [00:08:16] Great point that you’re making. And yes, and here’s my kind of punchline, which if I repeat this more than once in this interview, forgive me, but what we have 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. It could be backed by a financial sponsor, it could be publicly traded, but it’s still an operating entity in 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 want to have really great hardware.” “We want to be a really good integrator.” 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. If you’ve got the engineering talent, great. But at the end 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, five, six, seven years ago.

Winn Hardin: [00:09:33] Hundred percent. I wonder if that’s also indicative of a maturing industry, which is part of what I attribute this interest from outside capital. You know, back in the day in 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 little bit of a different environment.

Clint Bundy: [00:09:55] Yeah, I would agree. I think also the sophisticated groups have understood where the value is, and that is to be a solutions provider. And 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.

Winn Hardin: [00:10:18] Right, right. And the customers benefit from it, right? No more finger pointing. It’s just a nice vertical solution.

Clint Bundy: [00:10:24] Right.

Winn Hardin: [00:10:25] So when companies come to you looking for advisory guidance on possible acquisition or sale, what are some of the things that are triggering that interest level? Assuming we’re not talking about outside financial sponsors.

Clint Bundy: [00:10:40] Yeah, wow, good question. Because there could be like one of 100 reasons why we get a call from an owner, but I’ll give you some good examples. An obvious one could be retirement. We just sold a company in St. Louis. A very good automation firm. The owners, 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, “It’s time for us to diversify. For estate planning purposes, we need to diversify. And this management team, we’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 retirement’s 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, “I’ve taken this as far as I can on my own. And 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.” 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, a lot of owners these days are getting inbounds left and right from buyers. And you know, finally, they just get enough interest that they call us and say, “I think I need to at least explore this. There’s some things in my life going on that maybe make it the right time to do it, but I need to do this in a way where I don’t just pick the first person that called me and go with them,” because frankly that puts them in a pretty — not in this 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. Money — we understand that selling a business boils down to transaction price and money etc. But there’s usually something beyond just that that’s driving it. And so hopefully that gives you some good context.

Winn Hardin: [00:13:08] Absolutely. Does the old saw still ring true that the person that takes you up to $10 million may not be the one who can take you to $50 million or to $100 million?

Clint Bundy: [00:13:19] There’s a lot of truth to that. What I would say is that they’re just different needs to go from 10 to 50. It doesn’t mean the team you’ve had in place to get you to 10 can’t still be there, but you’re probably going to need — sometimes you need to have a full team changeover, or you just need to find ways to augment that team, which is what we see the most often is the infrastructure and team we’ve got in place to get you to 10. But, hey, we think we can get 5x. Well, we’re going to need more horsepower. So that’s our most common situation.

Winn Hardin: [00:13:56] I absolutely see that. I mean, it seems like, just as a side note, when you’re going from startup 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 assets, CapEx assets. I mean, 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.

Clint Bundy: [00:14:25] If I can add too, we see a lot of engineering-oriented, companies founded by engineers, and they’re great engineers and pretty good business people too. But they oftentimes start 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 COO. And we bring in somebody who’s grown three companies before up to 50 and let them deal with the strategic and working with the CFO on the financial. And you get to stay focused on what you enjoy the most, which is more the operations and engineering.”

Winn Hardin: [00:15:06] Yep, yep. I’ve seen lots of instances of that too. And I think the vast majority of the companies, especially in the industrial automation space, are indeed started by engineers. 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. So today, what makes an automation or manufacturing technology company especially attractive to investors when you’re evaluating potential acquisitions? I’m sure you’ve got a checklist. You’ve got a couple of high points on high boxes on that list?

Clint Bundy: [00:15:41] Yeah. And from our standpoint, just to refresh our listeners, we are an adviser 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, cut once 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 to generate interest from buyers, to use the golf analogy, we’re lined up on the tee box. We’ve done some practice swings and we like our odds. We’re going to crank it down the fairway 300 yards and not put it off into the woods.

Winn Hardin: [00:16:19] That would be a nice surprise. I’d like to try that one time.

Clint Bundy: [00:16:23] In my real golf game, I do put it in the woods a lot, but in representing clients, we try not to, and it kind of boils down to the theme 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 I’m going to give four major legs 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, is some kind of hopefully repeatability with the client base and revenue, recurring or recurring like revenue-stable industries. They’re focused on revenue that’s fairly stable. Profitable. We like to see good – we look at EBITDA margins. Your listeners may know this term. Winn, I know you’re familiar with it, but it’s earnings before interest, expense, taxes, depreciation, amortization. And you can have some one-time and extraordinary expenses that add to that. So we look at EBITDA margins. I’d like to see those hit certain benchmarks. Growth. Do they have a history of past growth? But very importantly, can the management team talk about future growth? Because ultimately a buyer is buying the future. They’re not buying the past. And we spend a lot of time with the client in the preparation phase, talking about that growth piece and then 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. “Scale” is a relative term admittedly. Does it have some real size to it? I mean, there’s a difference 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 versus one that’s doing 20 in revenue and 4 in EBITDA. So those are my four big legs of the stool. But within that, you’ve got other key things — like the management team’s critical. The industries that the company is 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 are they focused on automotive, which could be a little more volatile. So there are a whole lot more layers of the onion we could go into if we want.

Winn Hardin: [00:18:50] Absolutely, absolutely. So you’re mainly consulting on the sell side then?

Clint Bundy: [00:18:57] Yep. I do you like to have my interests aligned with the owners so that when they get a big win, we’re happy for them and with them.

Winn Hardin: [00:19:06] Yeah, yeah. So you’re helping them, prepare them to get their narrative and how to talk and understand their own organizational structure. Let’s say that I’m selling my company and you’re helping 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. I know that’s been a main concern. I get those calls all the time too, about folks wanting to acquire Tech B2B Marketing, which is the main sponsor of Manufacturing Matters. Anyway, do you apply that same analysis to the other side?

Clint Bundy: [00:19:43] We do. I will tell you, this is the benefit to an owner. While we’re big believers, if you’re going to be a seller, one, prepare. Don’t just wake up one day and say, “I’m going to go sell tomorrow.” Prepare for that. Two, go run a process, which means having good advisers in place, whether it be an investment banking adviser, transaction accountant, legal. Have advisers so you can look at options, because some owners they get so many calls and “Well, you know what, the next call that calls in, I’m just going to take that one.” Well, okay, great that you got an inbound. Congratulations. That does not mean that’s actually the best buyer. How are you going to know who the best buyer is? By interviewing a range of buyers and a structured process, learning about — we call it reverse due diligence. The buyer is going to do due diligence on your firm, but you’re going to do reverse due diligence with your advisers 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, usually the group that’s going to pay the most is usually — there have been exceptions — but is usually the best fit as well.

Winn Hardin: [00:20:55] Well it’s nice if those two needs align. So we talked about 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?

Clint Bundy: [00:21:07] I’m going to break it out into two camps. If an owner hasn’t prepared and they sort of take that approach of “I’m just going to take whoever calls me,” then there are a bunch of pitfalls there, a lot of potential for wasted time, to be honest with you, which unfortunately you don’t know on 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 gives them an offer at the front end: “I’m going to pay you this.” And then the buyer spends 30, 60, 90 days doing due diligence, comes back, and says, “Actually, I’m going to pay you 30% less than that,” which, by the way, just about every buyer out there is going to try that tactic if they have the opportunity to. It could be that word more easily leaks in the market about a sale because it’s, again, just not running in a structured fashion. So if the owners are more of a fly-by-night operation on it, there are a lot more risks. If they’ve prepared, if they’ve had advisers in place, if they’ve done a sell-side quality of earnings report, there’s still risk of course. There’s no guarantees until the day a deal closes. But the risks have gone down a lot. And now 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 could happen, but absent that, your only real risk is going to be what we would call material adverse change, which could be like you have a pandemic that nobody anticipated that absolutely crashes financials, or an industry that the company works in overnight has a sudden change in direction. We don’t see material adverse changes happen all that often. But of course, the pandemic is one example where it did impact some. Interesting enough, not only in the automation space, we had several deals in the market then that were fine, but a couple other industries that it impacted.

Winn Hardin: [00:23:14] I could see that. Black swan events definitely do happen. And it’s funny because it seems like we might be in an age of unanticipated events like that as AI finds its place. And I’m thinking mainly about software programming, and we have a lot of programmers on our staff and we’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, within the manufacturing industry at large, what are some bright spots? We’ve talked about data centers, which definitely connects to AI. And I was just mentioning that. Robotics has been strong, but what are you seeing in terms of some bright spots in the next five years?

Clint Bundy: [00:24:03] Yeah, I think there’s just an exciting landscape out there. I feel like most owners we encounter, certainly in advanced manufacturing, automation, are progressive in thinking. They are trying to figure out how do we utilize AI in becoming a better solutions provider. It’s a theme we talk a lot about with most companies we represent. We’re hammering home. These guys, they are a solutions provider, whether their bread and butter is system integration or flow sensor manufacturing or cybersecurity. At the end of the day, they’re providing solutions. And so I wouldn’t say there’s just one that I would pinpoint and say, “Boy, this is the, the subsegment of automation to be excited about,” because there’s just so many. But automated material handling is another one. Machine vision’s 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 subsegments. 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 great intel. We also have some good information we put out through our website and podcast. So stay educated and that’ll help you know where to build value.

Winn Hardin: [00:25:34] Before I ask the last question, Clint, tell us: Where is your podcast? Where can folks find more info?

Clint Bundy: [00:25:39] Yeah, our podcast is called Bundy Group Insights, and our website’s Bundygroup.com. We do have a subsection for automation, where they can see content that we’ve delivered for that.

Winn Hardin: [00:25:53] Awesome. Well, we’re going to give them some quick CliffsNotes 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 in the next five years, what’s that one piece of advice you want to give that person?

Clint Bundy: [00:26:11] Yeah, preparation. And preparation, that’s a high-level suggestion, but I would go back to my four legs of the stool: 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, it kind of becomes a war over the numbers. I know that kind of sounds draconian and I don’t mean that to, but what that means is that the better level of data and financials that you as a company have, 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 and that department can be worth their weight in gold. So that’s one of 100 pieces of advice I could give, Winn.

Winn Hardin: [00:27:23] Well, that’s both 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 advisers, and the whole time we were thinking about this, it really is about maximizing 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 in 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 advisers and maybe check with Clint over at the Bundy Group. 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.

Clint Bundy: [00:28:09] Winn, this is great. Thanks much. I really do appreciate it.

Winn Hardin: [00:28:12] Great, great. Someday I’ll have to come and be on your show. I look forward to that day. And in the meantime, if anyone has any questions for Clint, it was Bundygroup.com, correct?

Clint Bundy: [00:28:24] That’s right. Yeah.

Winn Hardin: [00:28:24] 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 him on LinkedIn and a bunch of other places. In the meantime, if you want to check out that old robotics panel that I was talking about — it’s not 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. See you soon.

Clint Bundy: [00:28:55] Thanks, Winn.