Precision machined products M&A update: 2016

Precision machined products industry overview and indicators

The precision machined products industry consists of diversified manufacturing businesses producing highly engineered components to customer specifications using a variety of materials such as steel, stainless steel, aluminum, brass, plastics and various aerospace and medical grade metallic alloys.

In December 2016, the Institute for Supply Management (ISM) announced its Purchasing Managers’ Index (PMI) rose 1.5 percent to 54.7, its highest level in two years. According to ISM data the fabricated metal products industry, of which precision machining is a sub sector, was one of 11 industries that grew in December. The ISM also announced its New Orders Index rose by 7.2 percent to 60.2 and its Production index rose by 4.3 percent to 60.3. The unexpectedly solid report showing in December may bode well for the precision machined products industry in 2017.

The Precision Machined Products Association (“PMPA”) publishes a monthly Business Trends Index based on the sales responses of industry players. In December 2016, the index was 117, which represents a 3.3 percent decline for the calendar year. However, the index was only .6 below the trailing five-year average.

Select public company metrics

Baker Tilly Capital reviewed publicly traded companies in the precision machining and fabricated metal parts industries. The identified comparable public companies are trading in a wide range: EV/EBITDA ranging from 4.2x to 11.7x with a mean of 8.2x. The EV/EBITDA has rebounded favorably during the second half of 2016. This can be contributed to overall economic factors and the net sales outlook for precision machined products.

Comparable public companies EV/EBITDA history
 

Note: Adjusted mean removes any outliers that skew the data
Sources: Capital IQ, public news sources and Baker Tilly Capital, LLC research, Dec. 31, 2016

Select 2015 and 2016 transactions

The selected transactions below are companies in the precision machining and fabricated metal parts industries that were acquired during 2015 and 2016. The market has seen constant acquisition activity, but publicly available valuation details are limited. For deals with publicly available data the average EV/EBITDA multiple was 11.3 with a range from 9.0x to 13.9x. The largest deal during the second half of 2016 was Polaris Industries Inc.’s acquisition of Transamerican Auto Parts Company, LLC. Through the acquisition, Polaris plans to extend its aftermarket accessories presence and attract new consumers to its existing brands, including Polaris Ranger and Sportsman ATVs.

Recent comparable transactions: January 2015 - December 2016 >

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