At the end of June, Flex Machine Tools and Flex Real Estate closed on Detroit machine tool company Tarus Products, Inc., in a transaction that included a 106,000-square-foot industrial property. Tarus Products, Inc. is a leader in the car design studio space, making the leading Claymill machine in addition to custom large-scale machining centers. To simplify what Tarus does, if a car maker wants to design a new car, it makes the initial models out of clay; Tarus’s main line of business makes the machines that enable auto manufacturers to create these clay models at scale and speed. In addition to the Claymill, Tarus creates custom large-format CNC and gundrilling machines. Tarus will expand Flex Machine Tools' capabilities to control its own production, as Tarus Products can produce machines 100 miles from our headquarters in Wapakoneta.
Tarus Claymill
Tarus at a Glance
Family-owned machine tool company founded in 1969
Established skilled machine-building workforce
Products: Car design studio Claymilling Machines, Gundrilling & Deephole Drilling Machines, Large 5-Axis CNC Machines, Coordinate Measuring Machines
~$20M average annual revenue over the previous four years
Tarus Claymill in action at the Ford Design Center in Dearborn, MI
Why Tarus fits with Flex Machine Tools
Flex Machine Tools has been looking to increase control of its machine supply over time. We have previously explored business plans that included developing manufacturing capability in-house; the main problem with this path to growth was the large time and dollar commitment, plus the learning curve of manufacturing complex machines at scale. From Flex Machine Tools' growth perspective, Tarus is a great opportunity because the company is already a fantastic machine tool builder with a complementary range of CNC products. Flex Machine Tools focuses on large gantry CNC machines; Tarus lets us expand our line to even bigger machines, building custom CNC machines ranging from one to five million dollars.
The existing Claymill pipeline will also supplement the period until the plant is ready to produce water jets for Flex, which will be the first line we begin producing. From an employee perspective, the fit was also clear: Tarus has been successful without significant investment in sales and marketing, previously using only a four-person internal team; Flex will add access to a sixteen-person sales and marketing team, amplifying the ability to gain new business. The Tarus team will continue to succeed in the Claymill space and add control and supply to the Flex Machine Tool supply line.
Flex CNC Machine
Why the property fits with our Real Estate Portfolio
The Flex family of companies has continuously benefited from owning its real estate leased to its operating companies and maintains ownership of 95% of its real estate needs. We like this property in Sterling Heights beyond the benefits of owner occupancy because it fits our thesis and is well positioned in the market. First, it sits in the heart of Detroit's automotive manufacturing hub, with neighbors including General Dynamics, Stellantis, Ford, and General Motors, plus a wide range of tier-one auto suppliers. Sterling Heights has a 1.6% vacancy rate across sixty-six million square feet and asking rents in the high single digits for industrial properties. The property can add another 45,000 square feet of production space through expansion or, in a worst-case scenario, allow the company to downsize its presence and lease the back building to a separate company. The buildings are relatively modern in layout and design, as they were built in 1983 and 1996, making them valuable as bulk industrial buildings if the business plan changes. In addition, the appraisal showed on-paper equity, returning a value above our purchase price. Overall, this is an exciting addition to the portfolio in a market where we would also like to buy additional projects.
38100 Commerce Drive in Sterling Heights, Michigan (Tarus HQ)
Flex in the Manufacturing Space
This is our second acquisition of an industrial property and operating business in the same transaction, and I do think it is a strategy we will build on in the future. Anecdotally, in the US manufacturing space, a big current issue is that operators want to transition to retirement and find they have limited succession plans, whether because of foreign competition or a limited pool of new operators interested in fabrication, machine building, injection molding, and tools & dies. In addition to the lack of new operators, companies with an EBITDA under $5M attract very little attention from private equity groups. This positions us to acquire great small companies while we have the financial and time capacity, and to continue growing US manufacturing, which in turn will secure and create new jobs in the manufacturing space. The best part of these transactions is learning from expert employees who have honed a skill or process and, with the right support system, can achieve greatness.
This transaction was completed with no outside investment, but as the platform grows, our accredited investors may have opportunities to participate in these acquisitions on the operating company side.
Reply to this email and let me know if there are any specific topics you would like to hear about next. Thank you for reading, and stay tuned for the September Focus!
.png?upscale=true&width=300&upscale=true&name=Untitled%20design%20(26).png)
