Kerry Lutz interviewed Jules Brenner about his company's successful investment strategy focused on the metal fabrication sector in California, particularly targeting old Rust Belt companies lacking succession plans. Jules explained their approach of modernizing these businesses through a long-term investment model, utilizing various financing methods such as bank loans, seller financing, and equity from their own resources and minority investors. The discussion also covered their plans to expand into the aerospace and defense industries, capitalizing on the current demand in California.
Lutz and Brenner highlighted the challenges of improving efficiency and adopting technology in traditional sectors like dry cleaning and metal fabrication, noting the difficulties older business owners face in modernizing. They emphasized the importance of responding to customer demands and industry growth to drive technological advancements and discussed strategies for scaling and diversifying revenue streams within California's evolving business landscape.
Find Jules here: industrialsuccession.com
Find Kerry here: FSN and here: Inflation.Cafe
Yeah, it's kind of interesting because our kind of equivalent of that is like the U.S. is going through, I would say, manufacturing resurgence. I think COVID has shown them that, like, A, we can't have so much dependency on other countries. Industries like aerospace and defense fundamentally, they can't make stuff in most countries. They can't sense up to China or Mexico for certain products. And then on top of that, like, you know, the U.S. typically wants to invest locally, especially when they feel like the economy is down. So I'm going to try a lot more mandates now for made-in-America products. You're listening to Carrie Lutz's Financial Survival Network, where you get valuable information you just can't find anywhere else. To thrive in today's trying times, you need the Financial Survival Network, now more than ever. Go to financialsurvivalnetwork.com and get your free newsletter and gift. Financial Survival Network, now more than ever. And welcome, you are listening to and watching the Financial Survival Network. I'm your host, Carrie Lutz. Well, just when you thought the Rust Belt was finally finished, along comes Jules Brenner. He's been taking these old Rust Belt-type companies, bringing them into the modern world, recapitalizing them, investing in technology. He's going to tell you all about it. Jules, thank you for being on the show. Hey, it's kind of an interesting concept to find value in the Rust Belt. How long have you been doing it for? Thanks for having me. We're going on our fifth year now, so we started during COVID, and we've been not gone ever since. All right, so give us an idea. What kind of companies are you acquiring, taking over? Yeah, so our main division for our business was to kind of look at the industrials pretty broadly. The industrial economy, in general, is a very typically tech under-invested segment. A lot of children don't want those kinds of companies these days. Their parents have been running over years or grandparents, and there's a lot of different opportunities to get into. We found our first initial footing in the metal fabrication sector, particularly in California. When I talk about metal fabrication, things like welding shops and machine shops, anyone taking metal and making custom shapes at it for customers, typically business to business, equipment manufacturers, construction, et cetera. This sector of the economy, especially with companies called it 50 employees, are down. There's thousands of them in California, but also a lot of them, unfortunately, shut down because kids don't want them, and then they never really leverage modern tools to get to scale. That's been the current focus and will be for the next few years. Sorry, how many companies have you acquired today? So we've got three, and then in California alone, there's about 6,000 of them, just metal fabrication businesses. They're all companies with no direct or clear line of succession, and basically, the kids don't want them for whatever reasons. There's opportunity there. You doing owner financing, are you getting bank loans or investor financing? How do you do it? I would say many of them are manufacturing for children succeeding their parents. It's a lot more popular in the Midwest, maybe, or different markets of the US, but really not in California. Everyone's trying to be a software engineer or something out here, but yeah, a lot of them out there. Then when we started, our goal was to do a permanent poll model, so we didn't want to start it out and be like a private equity group where we'd raise a fund, and then the fund would force us to sell it in five to seven years, so we didn't think that was the appropriate strategy. We wanted to do more long-term investing. What we did was we used banks predominantly. A lot of our sellers, they want to have seller financing involved sometimes for tax purposes, sometimes because it gets them a higher total price, and then we bring in equity ourselves mostly from our balance sheet, from existing businesses that we own as well as some minority investors that we have minded and brought into the poll as well. Sure. All right. Tell us how has it been going? Everybody's doing well. Yeah. Company's been doing well. We started with a business initially in the infrastructure side. It predominantly cost some other parts for roads, bridges, and highways in California. That was quite interesting for the first year or two that we operated on its own. Then at the end of last year, we bought two more businesses that were five minutes from us that brought us into electronic and enclosure industries as well as water treatment. We love that. It's been a lot of fun to look at segments of the economy that you knew where someone was making stuff for, but you didn't really know what it was like. Getting into that has been really exciting. For the next six months, our goal is to get into aerospace and defense as well through both purchasing and business and bringing some of that in organically. Interesting. Interesting. You like aerospace. Are there other particular markets you like? Yeah. I think we want to play to what's successful in California. There are certain things like bottom motive parts. There are pockets of California where that may make sense for making things for maybe a Tesla or a Rivian electric vehicles, but after that, a lot of that stuff just makes a lot more sense in the Midwest. In California, it's predominantly an historically aerospace and defense hub. Water treatment, they call water the new gold out here. These are all the droughts to try to operate all this equipment to treat water. Infrastructure. This is the largest infrastructure market in the country. It's been popular. My agriculture is actually also pretty popular here, especially at Central Valley, as well as semiconductors and medical equipment. We don't really do much for any of those. We like aerospace and defense because we are seeing an interesting influx of that work every shop in our business campus that is a metal shop is actually pretty much slammed at this point with aerospace and defense work. We think at least for the next few years, it'll be a good place to start. That's funny because these are what I would call boring businesses, although to me, no business is really boring. Maybe no boring business is one that you don't have to do anything and the money just bores in and you kind of sit back and do nothing, but how many of those are there? They're really not glamorous. They're not sexy. Yet, these businesses are highly profitable, big margins. When you bring in the efficiencies, I'll give you, for instance, here, there's a dry cleaner around the corner from the elderly Indian, as in from India, couple, and they still write out the slips by hand. The biggest accomplishment was that they got a credit card reader that actually took Apple then, and I look at it and they actually do the actual cleaning on the premises. I look at it and I want to say, why aren't you using computers? Why do we have this here? They don't barcode all the clothes the way the newer dry cleaners do, and I think it's a real opportunity for somebody. They're elderly. Their kids probably don't want to do it because I've never seen their kids there. Probably a great opportunity for somebody. Yeah. Yeah. It's interesting because some of those businesses, if the kids don't help the parents push technology, the parents typically, we see most of our sellers 55 and up in age, and a lot of those guys, they've been doing certain things a certain way for decades, so they don't particularly want to change. The kids aren't pushing change. It's pretty hard to give the business to do all those things. Sometimes it's either, like you said, easier to start from scratch, or you have to buy it and kind of do it yourself, but they probably do have a nice recurring list of clientele that is worth something over buying the bus starting something from zero. Yeah. I go there because it's honestly, they do a good job. All the years have been going only one time if they mess something up and they fixed it. It's cheaper because everything's paid for, sure, all the equipment's probably falling apart as we speak, but they do a decent job and it's cheaper and they're nice people. They're nice people, but when I see them take out the pen and they can't just do one slit that jills. I got to do two slips, one for the laundry, one for the dry cleaning. It's like, I just look at that and it's like, "Hey, I bet there's an app for an iPhone that you could do this on and it would take care of everything, but it's not my business." They didn't ask me and I'm not an ulterior, but I just so would like to ask them, "Why are you doing it?" I'm sure you encounter that situation all the time. Yeah, it's interesting because our equivalent of that is the US is going through manufacturing resurgence. I think COVID has shown them that A, we can't have so much dependency on other countries. Industries like aerospace and defense fundamentally, they can't make stuff in most countries. They can't send stuff to China or Mexico for certain products. Then on top of that, the US typically wants to invest locally, especially when they feel like the economy is down. There's a lot more mandates now for made-in-americ products, but what's happening is our customers are themselves in growth mode and eventually, if you have a customer in growth mode with supplier that's not keeping up, eventually that customer is going to have to go somewhere else or move work to a different location or whatever it is. I think our customers are forcing us to make some of these tech changes and some of these quality changes that maybe you don't have to do so much in certain industries because those industries aren't growing as much. You're basically your game plan here is to do a roll-up, keep acquiring these metal fabricators, put them under one banner, bring efficiencies to them, bring new technology. It's interesting because I'm sure a lot of these guys have been there doing this 20, 30 years, they're probably really good at their jobs. There's a lot of owners that are general managers of these businesses and we typically feel a lot of difficulty in them, selling them as finding someone who can replace them. The truth of the matter is it's very hard to replace somebody who's been doing a lot of different things really well for decades, but it's a lot easier to replace them if you have middle managers that specifically just purchase material, just schedule, just do production, whatever, and you spread the owner's workload across them. Part of our strategy is have the middle managers get those owner's businesses, bring them in and spread them across those that actually needs to transition smooth. The other thing that's happening is like California gets a pretty bad rap for being hard to do business in, which I actually completely agree with. I think it's very expensive to hire an employee for the office and kind of do any of those things that will help you as a business owner's scale. Part of the model here is if you can get to scale and bring businesses together, not only do you diversify revenue streams and spread workload across multiple people, so it's not all dependent on owner, but the actual California difficulty of doing business actually ends up becoming a moat for you, where it's very hard for a mom and pop to compete with someone that's bigger, because you just don't have the resources to it and customers, if they're growing, they're going to increasingly want to move work to someone who has more infrastructure and build up internally to handle it, so I think that's very important to our strategies. As you scale, you get exponentially stronger than a force to do business in California. All right. Okay. Well, really interesting there. Hey, I want to find out more about you connect with you on the web. How do you do that? So you can go to industrial succession.com, which is our main hold code. And if you want to learn more about our metal or ancient thesis, it's metal solutions holdings.com. And we're always happy to talk to anyone, whether it's enthusiasts in the space. We had investors reach out the one partner with us on some of the stuff in this. We had brokers. Sometimes people have owned the businesses themselves and are looking for someone to take them over. Please feel free to reach out on any of those channels. And it's just Jay Brenner at industrial succession.com for me now. All right. And hey, links in the shutouts to this interview on financial survival network.com. You got a question where jewels are myself. Shoot me an email K L at carrylets.com. And while you're on the site, please sign up for a free newsletter. Lot of great info there, a lot of helpful info that a guarantee will make you money. Jules, better pleasure. Good luck on your endeavor. Okay. Thanks for listening to Carrie Lutz's financial survival network, your solution to today's trying times. 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