E245: Why California is the Perfect Place for Industrial Rollups and Business Growth - Watch Here

About the Guest(s):

Jules Brenner is a dynamic entrepreneur and the founder of Industrial Succession, a company specializing in the acquisition and roll-up of industrial manufacturing businesses in California. With a background in mechanical and aerospace engineering from Brooklyn, New York, Jules has a unique blend of technical and business acumen. His career spans roles in industrial technology and software for electric vehicle systems, emphasizing business development. He brings a fresh perspective to traditional manufacturing businesses, aiming to modernize operations and implement technology to drive growth.

Episode Summary:

Welcome to the How2Exit podcast! In this episode, Ronald Skelton sits down with Jules Brenner, founder of Industrial Succession, to discuss his ambitious industrial roll-up strategy focused on metal fabrication companies in California. Jules shares his journey from Brooklyn to California, exploring how his experiences in industrial technology and software development for electric vehicles led him to the world of mergers and acquisitions. He offers insights into his decision-making process, emphasizing the untapped potential he saw in the manufacturing sector, despite conventional wisdom suggesting otherwise.

Throughout the conversation, Jules delves into the nuts and bolts of acquiring and optimizing manufacturing businesses. He discusses key themes such as the importance of tenacity in overcoming industry skepticism, identifying low-hanging fruit for operational improvements, and the significance of retaining institutional knowledge during transitions. Jules also touches on the strategic advantages of operating within California, despite its regulatory challenges, and outlines his vision for scaling his company to become a major player in metal fabrication on the West Coast.

Key Takeaways:

• Contrarian Thinking in M\&A: Jules emphasizes that sometimes going against conventional wisdom, such as investing in manufacturing or focusing on California, can reveal significant opportunities.
• Importance of Process and Technology: Modernizing traditional manufacturing businesses with updated processes and technology can lead to remarkable efficiency gains and scalability.
• Retaining Institutional Knowledge: Ensuring that critical knowledge from outgoing owners is retained within the company is vital for a smooth transition and continued success.
• Strategic Location Benefits: Despite California's regulatory and cost challenges, its substantial industrial base and infrastructure needs present unique growth opportunities.
• Diverse Industry Exposure: Diversifying the customer base across different sectors like infrastructure, defense, and medical can mitigate risks and stabilize revenue streams.

Notable Quotes:

1. "If you have this one skill set, you'll succeed further than most. And that's tenacity." - Ronald Skelton
2. "We want to become the largest metal fabrication network in California, if not the West Coast." - Jules Brenner
3. "We found a lot of growth from infrastructure because California's government allowed a lot of projects to get accelerated during COVID." - Jules Brenner
4. "By the end of this year, we aim to have four plants under operations ownership, each doing at least $25 million in revenue." - Jules Brenner
5. "The more aligned you are with your seller, the more flexible and beneficial the deal can be for both parties." - Jules Brenner

Article:

Insights from an Industrial Roll-Up: A Journey Through Metal Fabrication with Jules Brenner

Key Takeaways

• Contrarian Approach: Jules Brenner's distinct strategy involves focusing on manufacturing in California, a region often overlooked by traditional search funds, leveraging its economic resilience and infrastructure needs.
• Essential Skill Sets: Brenner emphasizes the critical importance of transferring knowledge from original business owners to new structures and streamlining processes with technology.
• Focused Growth Strategy: The aim is to consolidate metal fabrication shops, achieving significant economies of scale and operational efficiencies across multiple plants, with a goal of becoming a leading player on the West Coast.

Origin Story and Unique Approach to M&A

Contrarian Strategy in the California Market Jules Brenner’s journey into mergers and acquisitions stands out due to his contrarian approach. Rather than shying away from California’s restrictive business environment, he dives headfirst into it. Brenner, originally from Brooklyn and with an engineering background, moved to San Diego and navigated through various industrial sectors. Reflecting on his initial encounters, he recalls, “a lot of [metal shops] were kind of just telling me how their kids didn't really care for the company and they weren't sure what the future was going to be."

Such observations fueled his unique strategy: capitalizing on the prevalence of small, often family-run metal shops in California, and targeting businesses whose current owners were eager to sell. The state’s vast infrastructure—and the inherent benefits of being a big player within it—offered unique advantages. As Brenner puts it, "California’s government allowed a lot of infrastructure work to get accelerated" during the pandemic, an insight that steered him towards acquiring such companies.

Intelligent Scaling and Operational Efficiency Brenner’s focus on operational efficiency and strategic scaling sets him apart. His vision involves turning small metal fabrication shops into highly efficient operations through smart processes and technological integration. However, this is far from straightforward. "Most of these manufacturing businesses at the lower market size are usually treated like a piece of old commercial real estate," Brenner notes. By methodically implementing technology and process improvements, such as Metal Solutions OS, he seeks to transform these operations.

Brenner vividly recalls the critical importance of process and technology adaptation. He states, “You do have to keep within certain operating leverage hurdles…you got to reinvest almost all your EBITDA back to then go back up again.” His strategy involves not just acquiring businesses but revitalizing them with modern operational frameworks to harness efficiencies and ensure sustainable growth.

The Power of Tenacity and Informed Decision-Making

Navigating Initial Resistance One of the most striking aspects of Brenner’s story is his sheer tenacity. Encountering skepticism from traditional search funds, he instead chose a self-funded approach. Brenner perceived their reluctance as an opportunity. "Coming from venture capital, that usually means there is a chance for you to take a contrarian way of thinking," he explains. This persistence allowed him to establish a foothold in what many deemed an unviable market, ultimately facilitating acquisitions that big investors typically overlooked.

Focused Acquisition Strategy and Long-Term Vision Jules Brenner’s acquisition strategy is meticulously planned to ensure long-term sustainable growth. His targets have varied from heavy civil contractors to wastewater system suppliers, aiming to diversify risk and capitalize on California’s diverse industrial base. While discussing the potential impacts of these acquisitions, Brenner emphasizes the need for process and people. "Almost always guaranteed process because they literally had no process," he states. This realization led him to embed systematic operational procedures across all his acquisitions, ensuring scalability and increased efficiency.

Building a Future in Metal Fabrication: Scaling for Success

Strategic Geographic Focus and Expansion While many sight California as a tough market, Brenner’s approach involves capitalizing on its unique strengths. "If you can get to scale where you have dedicated enough revenue to support a dedicated amount of middle managers," Brenner explains, "the regulation almost becomes a moat to your business." With ambitions to create the largest metal fabrication network on the West Coast, his focus remains tightly aligned with specific growth sectors like defense and high-tech.

Implications of Industrial Roll-Ups in the West Coast The broader implications of Brenner's roll-up strategy within California underscore a transformative vision for local manufacturing. By consolidating smaller entities into a cohesive network, he not only optimizes operational efficiency but also strengthens California’s industrial capacity. His approach promises to redefine how metal fabrication shops can thrive despite stringent regulations, inheriting agility and robust infrastructures that smaller competitors struggle to maintain.

Operational Excellence Through Technological Integration The introduction of Metal Solutions OS stands as a testament to Brenner’s commitment to operational excellence. This system integrates custom software solutions tailored to streamline metal fabrication operations, thus ensuring higher productivity and a standardized approach across all acquired companies. "We try to focus on products that have to be made in California," Brenner asserts, highlighting the strategic value inherent in his geographic focus. This operational blueprint serves as a potential model for other sectors contemplating similar M&A strategies.

The insights from Jules Brenner's journey into the field of industrial roll-ups present an inspiring example of innovative thinking, process optimization, and strategic growth. His trajectory reveals how a blend of tenacity, informed decision-making, and geographical opportunism can pave the way for substantial success in sectors often perceived as challenging. The potential impacts of his work extend beyond his current sphere, offering valuable lessons for aspiring entrepreneurs and established professionals alike.

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