The Great Recession’s brutality has shaped how many business leaders view today’s current economic climate. They know opportunity abounds now, but they also never take their eye off the challenges ahead. They know how a severe downturn can rip off the scab covering a company’s weaknesses.
To that end, even during these days of record growth and opportunity, the scrutiny continues. Is the business diversified or is revenue overly concentrated among just a few large customers? At the same time, is the business focused on areas that accentuate its strengths? No matter how diversified or sophisticated a fabricator’s business becomes, it won’t last if it performs poorly or loses money.
Kevin Matkin saw these challenges firsthand when he joined Maysteel Industries in 2010 as vice president of operations. Today the fabricator is more than 600 strong. After a December 2017 acquisition of DAMAC Products, a California-based manufacturer of data center infrastructure products, Maysteel has three plants in North America, the main one being in Allenton, Wis., in the heart of “the ring of metal fabrication” around Lake Michigan; another is in Monterrey, Mexico.
DAMAC, La Mirada, Calif., also has partnerships with European fabricators to supply products across the pond. With its expanded footprint, Maysteel is poised for growth.
But it wasn’t like this in 2010. “Maysteel lost its way through the Great Recession, like many businesses did,” said Matkin, who has since been promoted to CEO. “So we said, ‘OK, we’ve got to hunker down and reset the strategy.’”
The reset strategy wasn’t easy and didn’t come without some painful decisions; the fabricator ended up exiting some key businesses and closing plants. But according to Matkin, and as evidenced by the company’s recent acquisition and expansion, Maysteel weathered the reset and is now in a much better place.
Maysteel traces its origins to 1936, when it opened as a small sheet metal shop. It grew and evolved, providing material for the war effort. By the 1970s a local investment group owned the fabricator.
During the 2000s the company made some changes that, in hindsight, didn’t lead to long-term success, but the moves were understandable all the same. Company leaders chose to sell Maysteel’s stamping assets, outsource stamping when needed, and focus on a greater number of areas, including manufacturing and assembly operations that involved printed circuit boards and various testing services.
Because these decisions were made before he arrived in 2010, Matkin said he couldn’t speak as to why the company chose this path. Regardless, Maysteel certainly isn’t the first metal manufacturer to broaden its focus. And exiting stamping wasn’t unheard of either. After all, the future was in the flexibility of soft tooling, right? And it was certainly reasonable to think that the more value Maysteel could provide its customers—through not only sheet metal work but also assembly and testing—the more successful it could be.
Of course, a fabricator’s current and potential customers really are the ones who determine value. As Matkin learned when he started at Maysteel and began visiting key accounts, many of them valued Maysteel’s stamping expertise. Maysteel also specialized in some complex fabrications that were often best to produce with a die set on a stamping press.
“When I arrived here, we didn’t have that stamping capability, and a lot of customers asked me, ‘Why did Maysteel do that?’ I wasn’t’ sure. I wasn’t here in 2008 and 2009. But I can tell you what I want to do and where we’re going.”
Matkin added that before he set any changes in motion, he listened to customers and, especially, employees. “You have two ears and one mouth, so I always try to listen twice as much as I talk,” he said, adding that to implement any change, “You need to put the right people in the right places, working on the right things and in the right order. That’s step one. This gets a group thinking, and you set the course. And if you think you’re going to do it in a vacuum, you’re wrong.”
From those meetings came a new direction. The fabricator underwent plant consolidations and ceased much, but not all, of its broad electromechanical assembly and testing services. But then it expanded. First, Maysteel brought stamping back in-house. Then in 2012 it opened another fabrication plant in Monterrey, Mexico, to serve OEM plants there and gain greater coverage of North America.
Metal fabrication isn’t a stranger to the private equity “strip and flip.” The “strip”—implying dramatic, unsustainable downsizing for short-term profit gains—could be debated in some situations. Some fabricators have benefited from changes that have turned out to be sustainable. After all, selling a fabricator stripped of its resources and yet with stellar profits is a bit like selling a house that looks beautiful on the outside but inside is falling apart. Logic dictates that, eventually, buyers wise up. (Admittedly, business isn’t always logical.)
But no one could argue about the “flip.” The most well-known private equity firms have institutional investors that expect a return not over decades but over just a few years. This, Matkin said, does not describe Littlejohn Capital, which purchased Maysteel in April 2017.
“It is private money, and it’s a slice of the private equity definition, but in some circles, it’s called a family office. This means they’re making investments with their own funds. There’s a long time horizon, and there is no set time to recoup the investment. It’s the best of all worlds. You’ve got private equity skills and an unbelievable high level of business acumen, but without the stress of the short timetable and the negative connotation of a ‘flip.’”
About 15 years ago Maysteel dedicated a portion of its Allenton facility, dubbed the Tech Center, to rapid prototyping and new product development. It’s where engineers from Maysteel and their customers collaborate on product design and design for manufacturability (DFM). The fabricator does use the area for quick-turn low-volume production from time to time, but for the most part, it uses the Tech Center for part design validation.
Maysteel maps out the process in stages. “It starts with the project investigation to really learn about what it is customers are trying to accomplish. What are they up against?”
That was Don Lawinger, executive vice president of business development, who added that all this comes before the actual quotation. “We really try to communicate upfront to understand the product being developed. What are their goals, objectives, and pain points, and how do we solve them?”
After that comes the quotation and, upon acceptance, a deeper dive into DFM to increase quality and decrease costs, providing the foundation for production, tool, and fixture development. This is followed by sample validation and verification. Then comes production and a continual re-evaluation. If any idea or change warrants it, Maysteel will prove it out in the Tech Center before altering production.
These steps outline a sheet metal design process that Matkin said is Maysteel’s strength, which provided the anchor for the postrecession rebound. Such prototyping and DFM services aren’t unique, though the process may be carried out differently elsewhere. Beyond financial constraints, there’s nothing legally stopping competitors from buying identical or similar machinery and software. But it’s impossible to copy the talent and how that talent works together. And it’s even harder to duplicate if the talent and culture are spread across the continent.
That was the thinking behind the 2012 expansion into Mexico, and it was also a key driver that caused Littlejohn to move forward with the DAMAC acquisition in 2017. “DAMAC is based on the West Coast, so it extends our footprint inside North America,” Matkin said, “but it also provides a partner in Europe that is providing similar sheet metal services. In that sense, it extends our footprint even farther.”
Matkin added that DAMAC complements and further diversifies Maysteel’s existing customer base, which runs across seven vertical markets: alternative energy, medical, gaming, security, industrial drives and automation, outdoor utility, and the self-service kiosk business. Another plus: Some of these markets, like kiosks and industrial automation, serve a broad range of businesses themselves.
“In this sense, we have a double layer of diversification,” Lawinger said.
Finally, DAMAC has a similar business model in that it stays away from commodity products driven mainly by price. “The company is in the business of providing customized engineered solutions,” Matkin said, “which is right in line with our strategy here at Maysteel.” The fabricator plans to keep the DAMAC name and as of January was starting to merge its sales operations to take advantage of cross-selling opportunities.
Maysteel’s struggles made the newspapers during and just after the Great Recession. And Maysteel is a union shop, represented by the International Association of Machinists. Like other companies in the state, the organization is facing legal challenges that stem from 2015, when Wisconsin became a right-to-work state.
It’s mainly over the timing of when a contract was signed, before or after Wisconsin’s right-to-work law took effect. With help from the National Right to Work Legal Defense Foundation, 10 workers have sued the IAM District 10 and Maysteel. They argue that the contract was signed after the 2015 right-to-work law went into effect and so can no longer be forced to join the union.
The case was still pending as of January 2018, and Matkin didn’t comment on specifics, but he did praise the fabricator’s union. “The union has participated in conversations and has worked with the business to ensure flexibility. It’s been very positive. Negotiations are negotiations, but there hasn’t been a strike, and the negotiations I participated in years ago were constructive. We were always trying to reach a solution, and it was never adversarial.”
Today Matkin said that Maysteel again is in a position of strength, focused on its core competency of sheet metal design. In the coming years, the fabricator may expand its geographic reach even farther. But this time, the company will remain focused on sheet metal, from prototyping through production.
“Winning breeds winning,” he said. “When it comes to attaining a good culture, it’s about getting people to believe things are possible. Wins can come in a lot of ways, be it recapturing a customer that may have been lost or making the decision to bring stamping back in-house. Gathering those wins creates momentum, and momentum creates participation. It’s amazing when the wheels of progress are turning in a collective way.”
Photos courtesy of Maysteel Industries, www.maysteel.com.