[00:00:04] Speaker A: Hello and welcome everyone. I'm Peter Lehrman and this is Masters in Small Business M A. This show is an ongoing exploration into the vast and undercovered world of small business m a where we interview both the proven and the emerging owners, operators, investors and advisors whose strategies and methods for transaction success have been put to the test. The show aims to us the nuanced intricacies, the key ingredients, and the important factors that can improve your decision making in your own journey in the world of small business. M A. This podcast is produced by Axial, an online platform that makes it easier for business owners and their M A advisors to find, research, and privately connect with a diverse mix of professional buyers of small businesses. In addition to learning more about Axial, you can find this podcast show notes, edited transcripts, and many other related resources, all for
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Peter Laraman is the CEO of Axial. All opinions expressed by Peter and podcast guests do not reflect the views or opinions of Axial. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Podcast guests may have ongoing client relationships with Axial.
[00:01:21] Speaker B: Hey folks, great to be back on masters in small business. M a. My name is Peter Lehrman. I'm the host of the show. I am really excited to have Troy Berg on the show today. Troy runs Dane manufacturing. It's a fantastic business story, not just an M A story. It's as much a business story as anything else. And lots of both organic and inorganic lessons to learn and really, really just interesting conversation that I'm excited to have. Troy, thank you very much. It's great to have you on and great to reconnect with you after all these years.
[00:01:53] Speaker C: Peter, thanks for having me. It's a pleasure.
[00:01:55] Speaker B: So let's just start by getting clear on what Troy has done with his team over the last little while here. And we can start with maybe just a quick origin story, just day manufacturing. What was it, day one and what has it become today? And then we'll go into some of the big moments on the journey.
[00:02:13] Speaker C: Sure. So much like maybe some of your listeners and maybe some of your listeners friends. It was a very small business and lots of people, I think I've told you before, like to refer to it as a mom and a pop. And I don't love that terminology because every husband and wife team that owns a business are a team, and they work together hard to make a business and a small business work. And so certainly behind me is a great woman named Michelle. But that's what it was. It was a small mom and pop, a stamping company. We work with metal. So metal fabrication manufacturing, that's in the name. And it had an 85 year history when Michelle and I acquired it. So the first acquisition was of Dane manufacturing itself back in 2001, right after the unfortunate 911 incident. The banks were kind of skittish. It slowed the closing, but we got it done. And it was, I always say, one point x. It was a $1 million company. Sometimes it was 1.2, sometimes it was 1.0. But it was a one point something million dollar company with ten employees. And it had an 85 year old history and a pretty good reputation. And so we set about the process to build it up and make a bigger impact with the employees, the customers and the community. And so as we started on that journey, we had kind of a hyper growth, organic, I wouldn't say strategy, just a requirement because we would have gotten obliterated had we not gotten bigger. The world was moving fast and so we grew quickly from 1 million up to six and got a few ink 5000 awards for that run of growth. And then we entered into kind of the next phase.
[00:03:55] Speaker B: How'd you grow it to 6 million?
[00:03:56] Speaker C: Yeah, that was just pure guts. Grit and blood. Guts and the beer, as I always like to call it, just getting out in the street and fighting for our share of the market. But we also improved a lot of our processes, acquired a lot of the machinery and some engineers. And then it was smiling and dialing Peter and then me on the phone talking to a lot of people who wanted to help us grow and see us grow so we could buy more machines and buy more steel. So we had a lot of good friends that invested in our growth pattern and our growth, our organic growth, so to speak. And just being a good, clean businessman and having a lot of kindness towards other people can get you a lot of help. And I always find the three simple words, can you help me? I guess that's four, right. Three, can you help me work pretty well? And most people will do what they can to help you as long as the request isn't too onerous. So we had a lot of help from a lot of good people. Let's steer some business our way. And then we never lost customers. Never. I didn't lose any customers for ten years. We had a lot of few go and free them up for the market. But it was our choice to say it wasn't a fit anymore. These were small companies that didn't grow. We were on a fast growth pace. So they became a smaller and smaller share of the business. And when then it got to be one or 2% of sales. But they were very demanding on the front office. I just said to my team, this isn't working. These folks cost us a lot of time in the front office, waste a lot of valuable staff time, and they really don't have enough sales to drive that cost any longer. So we'd have the breakup conversation. Sorry, it's not you, it's us. We've grown and it's no longer a good fit. Let's help you transition to another company. And we'd do that over a period of months so that it didn't mar our reputation or give the prior customer a bad feeling, because maybe something changes in their business going forward, or those people leave and go to a bigger company and then they come back going, that was a good company to work with. We just weren't a good fit. And I get that we weren't buying enough. There's always that fit measurements for good companies.
We grew, bought some machines, had a lot of help from the market and the customers, and a lot of our customers grew. Right? So they would give us more business as they grew, and we would help them with their new projects, continue to launch their new products to the market. So kind of all those things in the cookie dough, if you would maybe.
[00:06:22] Speaker B: Give us a sense for some of the customers back then. And what were you helping? What problems were you solving for them with the original day manufacturing metal business?
[00:06:31] Speaker C: Sure. So one customer was an interesting one. It would play more on the residential housing construction boom, early 2000s. So from 2001 two, maybe up to 2006, right, maybe 2007, right before the bubble of the housing bubble popping. And eight, nine, a great recession of eight and nine. The Home Depot and Lowe's and menards, those are three big home improvement centers. Those guys were expanding nationally at a rapid rate. And the story of Home Depot is the easiest one to follow. The Home Depot was adding a store every four weeks or three weeks or something in America. So they're 100,000, 120,000 square foot footprint of their big box retail stores. They were just putting one up every four weeks.
As they put those new stores up, they had to, of course, fill up the shelves with product. One of our customers product was in the electrical component area. So when you build a house, if you ever build a house, you see, or if you've been at the Home Depot or Lowe's, you see these blue boxes, they call them gang boxes, that all your light switches for your house get wired to and then all the outlets in your house have these blue plastic boxes, and they're plastic because they won't short out with the wire that's getting run into them if the wire comes off the outlet switch or the light switch on your wall. And sometimes they have two nails sticking out of them at a crazy angle, and that's to pound it into the wood stud behind the drywall. And sometimes they have a bracket.
And then in your kids, your children's bedrooms or your master bedroom, you might have a light in the middle of the room or a fan with a light, a ceiling fan. There's two pieces of metal that would hold that box in place for you to mount that ceiling fan and light, or just a light into your kid's bedroom. We made millions of those parts. And so every time Home Depot would start up another store, they'd need another half million units, and we'd crank up the stamping presses. And it went like that for six years in a row. We just couldn't make enough or barely kept up with the demand. And that grew from that kind of client, grew from 100,000 to two and a half million in sales. So they became almost half our sales at 6 million. And it was pretty scary. And then we worked harder to diversify away from them and to continue to grow with other customers. And that was the early days. That was one story I could share with you. There's a couple of others, but that's probably the most. That was the funnest run. Yeah.
[00:08:59] Speaker B: I just wanted to make sure everybody had a sense for some of the products that you guys were making back then. And maybe just before we get into the next chapter, the 1 million to $6 million revenue journey for Dane manufacturing. You took over the business, you acquired the business in 2001. What's that time horizon over which you grew the business by the initial six x? Where are we in time now?
[00:09:23] Speaker C: Sure. So that would have been 2001 to 2005. So that was our first full year in the chair was two. So, 2345. So in four years, we six x the company. Yeah. And the real quick run up was the first year. So 85 years, the company never broke 2 million. And many companies never break two, and they don't break five. And so we broke two and five in small business world, but I always remind people, it's the law, small numbers, but it did require a lot of change in growth. And I'd say as much change in growth in me as in anything I had to change my view so that six x growth was over a four year period.
[00:10:08] Speaker B: Okay, what's the next big chapter?
[00:10:10] Speaker C: Yeah, next big chapter was we hovered around that 6,000,005 and a half. Six and a half. Just kind of dithered in between there for a little too long, probably another four or five years. And I said, man, this is hard. What's going on? And I realized that I was the problem. Not that I wasn't trying to change and grow and improve on the personal development side and improve my customer base and sales skills. It was I was doing too much. So, as an entrepreneur, sometimes our desire for perfection and or speed, or we kid ourselves thinking we're the only ones that can do a certain job. And so we end up taking on too much of the front office or too much of any one thing, decision making process or whatever. So everything depended on Troy. And I said, this can't continue.
But it was sales. We weren't getting enough sales process because it was all going through me. So I had one internal salesman that I've asked to him to develop and become more of an outside sales focused individual. And then I hired a professional outside salesman. And we very quickly then changed and ran our organic growth from 6 million up to the next kind of 12 million, kind of the next doubling, if you will. And that was about. Well, we had that four year dither in the middle there where I didn't recognize the changes I needed to make. And then we ran that 4 million up to that 6 million up to twelve. We also did a couple of small acquisitions in the middle of there, Peter. One was a million dollar fabricated hydraulic tank business, and the other one was a million dollar small fastener type product, like a c type product that went to the appliance industry. So gE appliance, Wolf sub zero and electrolux, a couple of the three large appliance makers in the United States. And we would ship to their manufacturing plants. And so for dishwashers and refrigerators and things like that, you set that product in your cabinets or in your built ins and you got to make sure that the product is level. So we made these little tiny feet that were on the bottom of the refrigerators and the dishwashers in the millions, they made about 25 million of them a year. And I bought that company and moved it from Rockford, Illinois up to Wisconsin in nine to get my people back to work.
[00:12:34] Speaker B: Was that your first acquisition with Dame manufacturing?
[00:12:37] Speaker C: So that was the second. The first one was a company called Power Gen. It was a hydraulic tank maker that did work with Bosch, Cummins and some large company called Hidac out of Germany, some large hydraulic systems manufacturers. And so we would make the tank, the reservoir. You'd fill the oil into the hydraulic oil for all kinds of mobile construction equipment. So you see these big sky tracks that will lift shingles up onto the roof of a house, or they'll lift up a bunch of stuff up onto a bridge. Jlgs, that's a genie lift group. That's a large blue boom lifts, and they'll lift people up under a bridge to paint it or to work on it. All of those over the dirt construction vehicles. Bobcat was another customer. Some fire trucks that required these mobile hydraulic systems that would lift the boom and lift the man up in the bucket. And so that reservoir was super critical to that whole system working. We made those for those three main hydraulic Bosch, Rex Roth, Hidac, and then Cummins owning and people like that.
Those systems then got sold to those oems that make those vehicles. And so we were an important component to that whole system, and we made those for many, many years.
[00:13:56] Speaker B: I want to cover the first acquisition. Was this the first acquisition you had made in your professional career?
[00:14:01] Speaker C: Dane was the first acquisition, exactly.
[00:14:04] Speaker B: But separate from Dane, was this the first time you. Okay, so what was that mean? Was that straightforward? Or was that not just, did you feel like a fish out of water, or did it seem relatively straightforward to you what you were doing?
[00:14:20] Speaker C: Both of those acquisitions were pretty straightforward compared to the next one we'll talk about, because both of those owners wanted to sell. Both of those owners were really decent humans that were kind of getting to the end of their run, if you will, were kind of winding down to go to retirement. And I was buying a small part of their companies. In the case of the hydraulic tank maker, they didn't want to do it anymore. And in the case of the small leg leveler business, he had three parts of his business, and that was just one of them that he could generate cash from to get ready for retirement. So in both cases, the owners were wanting to sell, wanted a pretty straightforward transaction, and just wanted cash. And their price, what they wanted for the business, for the enterprises, was low to market value because they weren't running them very well. And so I was able to recognize that early on that we were getting these things for, in m a terms, you know, one to one and a half times EBITDA, basically, their EBITDA, not what my EBITDA would be. So our paybacks on them, Peter, were quick, and they were low risk. And the bank that I had at the time totally supported that because I did the first one and it worked out really well. In twelve months, we were generating good cash with it and paid back the money we'd borrowed into working capital. And the second one, the bank supported it because of the timing nine. We were coming out of the great Recession and it was a small financial bet, if you will. 400,000 was a small acquisition for a million and a half dollars in sales. I paid 400,000 for it, so basically bought the guys equipment and inventory.
[00:16:08] Speaker B: In both cases, how did you find these opportunities? I guess you were pretty connected to them just through the supply chain that you were a part of already, is that right?
[00:16:17] Speaker C: Yeah. I've had the privilege of living in a lot of different places in the upper midwest when I came out of school as an engineer. So I lived in Illinois, I lived in the automotive industry in Detroit for a while. And so I was very comfortable in those industrial cities. And then having been in a lot of manufacturing plants, I could walk into them and kind of size up operations pretty quickly. In the case of both of those companies, I bought from Rockford, Illinois. And if anybody knows the story of Rockford, it's kind of a down on your luck, down in the mouth kind of city. It always ranks 299 or 300 out of worst cities to live in in the United States. And I went fishing down there. It's about 90 minutes from Madison where my plants are located. And in both cases, there's a lot of industrial base down there. In both cases I found those. One through a friend and the other through business broker out in New York City, actually found me the Rockford company. I paid him a commission for finding the business. So that was how I found that one. A little tiny ad in the back of a trade magazine. Know, business broker. Call this number. And it was a really smart guy. I called this number and that guy literally had an office in the Bronx, in Brooklyn maybe, and he was smiling and dialing and he found the company four weeks into our acquisition search and we did the deal and I wrote him a check. I think he was like 25% of the acquisition costs had to go to him because I had to write small one. Yeah.
[00:17:47] Speaker B: Well, sounds like after a couple of relatively straightforward acquisitions, you had one that was more challenging. Let's hear about that one.
[00:17:56] Speaker C: Yeah. So that got us to the second doubling from six to twelve. And then we were kind of running at twelve for a few years. And same thing. I was working probably a little bit too much at running the operation, as well as trying to do some things strategically. So I hired a friend of mine to come in and help me with the operation so that I could free up some of my time. So running the operations, selling for the operation, didn't give me enough time in my day to work on the next strategies, the bigger strategies. And if you run a production company, you get a lot of white noise in your head and it's hard to free your mind up, if you will go in your office, close the door and get your mind free from all the production white noise to be able to work on something strategic. Right. A lot of interruptions. So I hired Mike. Mike then became our chief operating officer and he ran production for me. And then he and I created the plan to triple the company in three years. So we were going to three exit in three years. And part of that plan was to divest of that small acquisition. That second one I did, because it wasn't core to what we did anymore. And we had grown from six to twelve, and that was a good one to help us get out of the mud in the great Recession. But it was no longer core to what we were doing and where we were heading in dealing with General Electric, Electrolux and Wolf sub zero. The first two were very difficult customers because their supply chain management is mostly asian and they just kind of like to put on the brass knuckles and beat you up. So we said, let's get rid of that business. So we divested of that and our sales went down by about a million and a half. When we sold it, we bought, it was a million and a half. When we sold, it was a million and a half. We took that cash, put it into the fabrication side of the business, and then grew some of our sales organically there. So then we entered into. We joined your electronic website, Peter Axial net.
You had a salesman that worked for you that was very good, called us up and convinced us to join your community, and it was a great decision. So on Axial net, then we were able to utilize all your search tools and criteria and go in and really refine our searches down to look for a company that would fit exactly the target. We had painted both revenue size as well as type of product in the industrial space that we wanted to enter as well as sort very quickly through hundreds and hundreds of companies. And so during that first three to six months with all your awesome staff at Axio, we were able to get really good. The tools got better. Your search tools were getting better and better and able to refine. You were adding thousands of people to the community every couple of months, we'd get another thousand people would join thousand groups, rather would join the community, both sellers, buyers, and intermediaries. And during that time, we landed on about 100 prospects. We'd get the Sims. We would roll through the confidential information memorandums, and we could decide very quickly, no.
And boom. After about 100, we found this company in Spartanburg, South Carolina. It was a division, a subsidiary of a large company in Europe that had financial trouble, and they were selling the subsidiary. Then we started into conversing with the president of that company that had put the company on axial. He was his job to sell the company for the banks that owned it in Denmark and Norway, and they put the company in receivership, and we entered into that acquisition. The process took about two years. We were one year into our three years, three x tripling at the time. We were growing nicely, organically, and we started to work on this acquisition. It was quite a journey. Some of your staff have interviewed me over the years. There's some great articles out there. Three x in three years, from ten to 30 million. And they captured the story very nicely on your website and some of your blogs. But real quickly, the company, Dane Manufacturing, went from 10 million to 20 organically. Over the time we set that goal in 2015 to June of 2018, we landed some big contract manufacturing work with a public company that grew by 7 million. And then at the same time, we were able to get the acquisition done with Danthurn. I'll tell for the more sophisticated buyers, at the end of the day, it required us to go to two new banks to split up our long term and short term lending to two new banks. One of them we found on axial as well, crestmark out of Michigan. They came in and stepped in as our working capital lender. That was a great fit for us for a year. And then the long term bank that wrote the loans for the acquisition, and then we have our standard local bank. So we ended up changing our local bank. Sorry, there's three banks involved at the time. So the local bank, the working capital lender, as well as the long term lender for Danthurn cooling. So we went from one bank to three banks, and then there was two banks in Europe as well. So it involves six banks, four law firms, and 15 swift transactions at the end of the day with $10 million in wire transactions to get banks moving. Dane's working capital and Dane's long term debt, and then Danthurm's long term debt, and then paying the banks in Europe, as well as paying the intermediaries and some other people. So it was very complex, a lot of negotiations. The law firm that was the trustee for the banks to make it an arm's length transaction in Europe, was the largest law firm in Europe. And this was one small aspect of what this lawyer did every day. His name was Christian. There was a little hockey story there. Christian was a good guy. He liked me, trusted me, and he had six Americans had come to try to buy the operation before me, and he did not like Americans because of the rough and tumble m a world in America. And he thought we were, in general, rude people.
I just tried to be kind and friendly and consistent and truthful in everything we were doing. And I asked him for his patience and his continued grace, and he gave me some time. And I think at the end of the day, he realized we were the ones that were going to get the transaction done. Even though we were small, we had to go on biweekly calls with him until we were able to get all the financing mechanisms put in place. He got the deal done. It was clean. There was no down after effect to any of the money we had escrowed for him. He got all that as well, and we became, I would say, I wouldn't say friends, but we became very good acquaintances. So at the time, the Washington Capitals were in the Stanley cup playoffs, and there was a Danishman that was playing for the Capitals, and it was the first danishman that had been in the Stanley cup playoffs, like in the history of the NHL. And I was sitting up one night watching the game after I got off the hockey rink, and I noticed the time difference between Denmark and America. So it would have been like 01:00 in the morning, my time, and I sent Christian a text message, and it ends up he was working from home that day and he was watching the game at the time, or he had watched the game. I was watching the game in delay, excuse me. And he had watched the game earlier. So I sent him a text message and he texted me right back, and it was game five. And he said, oh, you're watching a very good game. I won't tell you anything.
Or game six. I guess it was the last game where they clinched the Stanley cup, but we communicated back and forth a couple of the deal points, and he texted me back and he said, troy, I trust you. We're going to get this done. So that was kind of a fun exchange at 01:00 in the morning in my living room with know halfway across, we got it done.
[00:25:57] Speaker B: Have you held onto that acquisition you haven't divested. That was Dan Thurm, correct?
[00:26:02] Speaker C: Correct. Yes, we've held onto it. I brought in a new president just before we closed, Greg Kay. He's still with me. And then I kept your main engineering mind down there. His name is Rick Schmidt. Super great guy. We made Rick the chief technology officer, and Rick's been with the company 18 years now. And I see those guys about once a month. I'll go down for a couple of days. Yeah, they've grown from the time that we bought them to this year. They've also doubled in sales. So they went from being like a $9 million a year annual revenue company to 18 and a half million. Will finish this year. On the revenue side, next year will be probably another 10 million in revenue growth next year. We have a lot of things queued up for battery energy storage, renewable energy transmission and distribution, for power, a lot of cooling of controls, if you will. So the things that make our world go round, both natural gas and oil pipelines, they got these big drives, and the controls got to be kept cool in the middle of Oklahoma or Nebraska as they move that natural gas around. Those companies come to us for cooling of those cabinets and those electronics. That's what Danthurm does, as well as the 5g. So everybody that's in the 5g space, we sell to and then also the industrial space for electricity generation and distribution. So that's the transmission and distribution of electricity for your Tesla car or your house to watch tv or listen to this podcast. All that electricity has to be managed and distributed. And so those controls are very sophisticated and millions and millions in electrical control. They're in these small houses and shelters, if you will. And so we do some shelter cooling as well. So all air conditioning all running off, power off the grid.
[00:27:51] Speaker B: Troy, have you integrated Dantherm in any meaningful way into the existing sort of pre existing Dane manufacturing business, or have you largely let them run distinctly? Could you talk a little bit about what you have integrated and what you've let run sort of standalone?
[00:28:05] Speaker C: Yeah. Great question, Peter. Thank you. One of the things we did during the COVID season was during the pandemic in 2020. We had a strategic goal to improve our ERP systems, our enterprise resource planning systems for both companies. We were growing very fast and the pandemic hadn't quite hit. So we set the goal in the fall of 19 for 2020 to upgrade both Dane and Danthurm, put them on the same platform of software, if you will, and so go through an ERP upgrade. So we began that process, and we powered through it, even through the pandemic, and got both companies on the same system so that they're fully integrated. And I have one CFO here in Wisconsin that can look at everything related to production and costs, as well as sales and profitability, and merge our balance sheets on a consolidated basis. So that was a huge integration for us in 2021. Now that's done and behind us and working really well. The second integration was real deep integration between the two businesses was I sent one of my best engineers from Dane manufacturing down to Danthurn, somebody that'd been with me a long time, a very bright engineer, and he's a senior engineer, and his name's Ken. I said, ken, I'm going to ask you to move to south Carolina. It'll be great for your family, it'll be great for you. And I need you to take your Talents and redesign a lot of the packaging, the sheet metal that goes around these air conditioners and heat transfer devices, so that Dane manufacturing can make the metal in a more consistent fashion in high volume. And so Ken went down there, repackaged everything, went through about ten different models. It's got a lot of nice designs for us, and it's all designed with Dane's machinery and processes in mind, from our punching machines, through welding, through powder coating and assembly. And now we have about $2 million worth of metal. That leaves here every week to go to South Carolina. So, big integration on the sheet metal side. And then we have a few more integrations in regards to some of the internal parts. We make all of the heat exchangers up here for their heat exchangers. Those are manufactured here. They had a machine that was made in Denmark, came to Spartanburg, South Carolina. They ran it for a while. When we bought the company, we said, hey, that's not what you guys do. You're primarily a high tech assembly company. We're going to take this metal manufacturing line out of here, and we're going to move it up to Wisconsin. So that was Ken's project originally when he was still at Dane. So we moved that up here. So we have that integration as well, that we did early in the process, in 19. So we have an inline process, automated heater core, or heat exchange core manufacturing up here. So, yeah, lots of integrations, Peter, between the two businesses. But Danthurm does run as a separate entity on its own, with its own leadership. And that president reports to me. I'm the CEO, and then president of Dane reports to me also. So I kind of have three direct reports, and I let them have autonomy. I let them run that team in Spartanburg. They have a great culture down there, and it's a nice small business that's growing very nicely. And everybody that tours that facility, we have a lean six sigma black belt that runs production. It's world class now. It's a show place for people in Spartanburg CouNTY and the upstate of SOuTH CaROLINA to come visit. What you can do to turn around a company and then make it a show place, it's got a really nice feel, as well as culture and then just state of the art manufacturing processes. World class in every way. Labor as a percent of sales, productivity, throughput quality. All of our customers come and visit it, and they're just blown away at how well we do what we do.
[00:31:47] Speaker B: That's such a cool story. I remember you guys, when you made that acquisition. I remember that the story that you've now written was just getting. You were just getting started developing that acquisition and figuring out how to mobilize the capabilities down in Spartanburg. It seems like you guys have figured out a lot of things and created another great turnaround story. I want to keep on moving because I want to leave room for just where I want to talk about you at the end of all this and just the journey that you've been on as a leader of Dane and all the things that you know have impacted you and things that you've appreciated and realized about the journey. Before I let you go, but before we talk about you, this real estate acquisition that we talked about before we pushed record is really, really interesting. A lot of the people who, I think, tune into the masters in small business podcast or folks that are interested in M a and acquiring operating companies, we don't talk a lot about real estate transactions as an unlock for operating company growth, But MAYBE we should, because it seems like it's been a very big part of the story JUSt in the last couple of years HerE for dane. So LEt's Just dive into this. ReallY, REALLY worth giving some airtime to. Sounds, if I'm not mistaken, that you guys were running the Dane manufacturing operation really at its full potential, given the limits of its physical capabilities.
And then this real estate opportunity presented ITself and created, like, a transformational opportunity for you guys to just totally change the physical plant capacity for Dane. Right. And you decided to take a huge swing and figure out how to do this, and, obviously, to figure out how to do it from a financing perspective in a way that managed the risk. But let's hear about this, sort of, how did the opportunity present itself to begin with? And tell us a little bit about just the scale of the opportunity relative to the existing physical footprint. Know that Dane had prior to this.
[00:33:56] Speaker C: Great stuff, Peter. Lots to unpack there. Let me see if I can do it in a way that will make sense to your listeners and to you to see if I can do it justice to give people enough understanding. One of the struggles, but one of the challenges you get as you scale a business through the different thresholds, and the thresholds are all kind of called out in the data. They're called out in a lot of the groupings you guys have on axial net. And one of the things that the pes and the heads and the private bankers and a lot of the family offices and even some of the institutional money has figured out is that there's a lot of money being made in manufacturing, and there's a lot of money being made in manufacturing in that low mid market sector. And so we've seen a lot of movement of the m and a market into that space that I've lived in for 28 years. And so that's good, because that probably gives those smaller businesses, number one, it gives those owners a chance to exit. It gives those smaller businesses a chance to scale with some money. But many times, private equity and family office maybe doesn't want to hold the real estate. But the real estate is a very important component in being efficient with your manufacturing operation. Right. And if you're scaling, in my case, it's been hyper growth for a long time. So that's very double digit plus 20% every year. And the bigger you get, the harder that is to kind of not only maintain, but it requires more and more working capital, as well as more and more production capacity to keep that path going. Well, the number one thing you oftentimes run into is space constraints. And so if you don't think about your space constraint kind of as an obstacle and certainly as a limitation, it will smack you square in the face eventually. And your production people say, hey, boss. Hey, owner. I got no more rabbits in my hat. I don't have anywhere to put this inventory. It rains or it snows in Wisconsin, and we can't set it outside, can't put it underneath the lean to because it'll get wet. And pretty soon we'll have challenge. Well, let's make a temporary structure outside. So you come up with all these creative ways, but eventually it's like, I got to build a damn building, or I got to find another building. Well, so you got two choices. I'm going to build a new building or an addition to my factory. Well, that's a huge distraction for somebody as well as the operation second path is. I'll say, well, I'm going to split my operation into two sites. Okay, now, you just entered down a very, very slippery slope as far as lost productivity, moving material people. Maybe your front office is in a different location than your second site that you're going to do just manufacturing in. Only now you split your leadership team. You've got all kinds of issues. When you split into two locations, they might be right across the street from each other. They might as well be 20 miles apart, because now, two different cultures and two different buildings.
As we grew, we ran right into the space constraints. Five different times we added onto the factory and the old factory. And so it was small company to begin with. So the metric is one and a half acres with 28,000 sqft. When I bought Dane with ten people. Right. So then I acquired the rest of the land on the city block that we have now we have three acres. Oh, my God. We doubled the land. This is great. And then eventually, over five on the facility. Every construction project was a huge distraction for me and the team. We end up with 60,000 modern manufacturing. We updated all the space, the lighting, the power, the blah, blah. And now we're full.
We got ten pounds of stuff in a five pound bag, and we still can't. And now we're hitting our head on the ability to grow. As we bring in customers, they see this beautiful facility with smiling people and a great culture, and they see inventory in every single corner. They see us moving it five times. It's not efficient. And they go, man, it's too bad. We'd like to give Dane more work, but there's no way. If I give him another $2 million worth of work, where the heck are they going to put it? How are they going to flow it? And so we do this happy dance when they're in the factory going, well, we've got high velocity, we can do it. And it was almost like the munchkins in Willy Wonka we can't do.
So after a while, they're great sales. That's great sales stick. Troy, Seth, Mike, team Dane. But we're not buying it. And so big companies don't want risk. And so in order to derisk, they would say, okay, we're only going to give Dane so much, so they kind of start to cap our growth. Well, then when we get a second plant strategy, we are able to say, well, we have a second plant. We have a second plant. And then they say, okay, well, you come see the second plant, and that's only 50,000. It's mostly paint line. And they're like, that's not really what we were expecting. And it's not super impressive because it's not our facility. We'renting it. All right, then this opportunity presents itself right down the street from where we're currently located in a much bigger community, a very wealthy community that has a nice industrial park and a very active village. Government that does a lot of planning. And they have both beautiful private homes as well as good zoning for their industrial parks. And the industrial park has got five stages that's added on to itself five times over 20 years. And it's a hyper growth community, and it's got a lot of workforce. And I said, okay, but a really nice reputation. So I said, okay, good schools, good houses, good community, good governance, good police, all of it. So I said, let's go there and move our paint line there and begin to get a toehold in this big facility, and let's see what happens. And I bet you if we plan it right and play our cards right, we can own part of it or all of it. And so that was the intent. In 2019, we moved part of our second plant operation here. So to give the listeners a metric, then I told Peter before we got online here, it's one half of a car factory. It's huge operation, huge campus. So it's 50 acres of physical land with 500,000 sqft. Again, remind the listeners who are on three acres with 60,000 sqft. So almost ten x the buildings under roof as well as the open manufacturing space as well as what is that, 15 x the available land. The nice part about having the land is you end up with trucks and truck docks and places to set things down outside your scrap metal dumpsters, your garbage dumpsters. I just call it site operations. You need places to set stuff outside your manufacturing to keep your manufacturing streamlined and lean and so pallets come in by the truckloads, you get to scale where you got to have places to set stuff. And so this facility, this campus, has a ton of land to be able to do that. On top of that, you got to have parking for your employee base. Now we're up to 160 employees. They got to have a place to park, including me. So we have that, too. We have a lot of parking spots. So really beautiful. So how the acquisition of the real estate came about was we were renters. And in 2020, just before the pandemic, the trustee of the family that owned this land came to us and said, how would you like to buy the facility, one of the main facilities, buildings that you're in? And I said, his name is Alan. We've become good friends. I said, alan, I don't want to just buy this building and the land associated with it, which is one third of the space and one third of the land. I want to buy the whole thing, but we're little. You got to help. Can you help me? My famous phrase, can you help me? And he goes, well, sure, we can help you. So that's what began a process over the next year to buy it in phases, and we were able to do it with a mechanism called land contract, where the wealthy family has owned it for 60 years.
I tell your listeners, in the private ownership, as well as maybe even the things they're associated with, with their company, everybody has a certain amount of pride and shiksa and things that they want for themselves, their families. They identify with how they dress, where they live, where they send their kids to school, the cars they drive, all of that. Well, when you're wealthy, like this family is, you have a legacy, and so you care who comes behind you or your dad to buy your properties from you. And this family owns a lot of property, so they care who owns the property next. And they kind of want to steer that if they can. And they want to be associated with a winner, and they want to be associated with a company that is proud of what they do. And it's been around a long time, so we had that going for us. And I was able to convince the family and the owners and the trust that we would, number one, if they became the bank in the land contract, that we would, number one, pay them back, and number two, honor their father and their family by entering into this transaction with us. So once again, it was very much like an acquisition of a private company. It felt like an acquisition. I had to give them the vision, talk about my culture. They had us as renters for a year and a half, so they saw how well we paid our rent every month with an ach on the first of the month. So they had a history with us. And then it really came down to a matter of trust. Right? They're going to trust that I'm going to follow it through on the deal, and I'm going to take over the whole campus. So that's what we did. We entered into a land contract, and then as time went by, the banks came in with permanent financing behind that to pay off the first phase, and that allowed us to move to the second phase. And then, so this year, the bank came behind us with a solid mortgage. We paid off the land contract, then phase two and phase three. I asked the family and the trustee put those together in one transaction, not two, so that we could just get the deal done. So then we did one land contract for the next piece, and that's where we sit. So now we end up with two buildings connected, making up 420,000. Dane sits in 180, and the 240 has some industrial customers, as well as industrial customers that rent from us.
For the m and a folks, there's about a 1% to 2% vacancy rate on industrial manufacturing space in America right now. So if you actually want to do an acquisition, you should buy the property with it, where in most cases, you don't want to tie up your capital. Buy the real estate. I would tell you, buy the real estate this time and take a little more capital to the cap table and buy the real estate, because there's not enough industrial manufacturing space in America anywhere, and that real estate will appreciate with the inflationary rate that we're in right now. So that, in and of itself, is a good strategy for you. And you could do it in two tiers. You can have a partner on the real estate side, and you can be on the cap table. So I would strongly consider that. So, all right, all that done. We get to this location. We move in 21, we move all of danes down here. And now we're under one roof again. And so we don't have this. Two cultures, two roofs 10 miles away from each other. We have one culture, one roof, one front office. Everyone's here, all the leaders, all the decision making in one place again. Get all the synergies of all of that together. The engineers are in the same building as the production. It's all good. We start to garner a bunch of customer interest in our space. Now that all these customers know, we got more capacity, both in physical space as well as in machine capacity. We added to the machines as we grew. We came in here. Now we had a place to put those machines, so we bought more machinery, and we ramped it up. Peter and so we've gone from 20 million to 40 million in the last two years in sales.
Before the pandemic, we were about 25 million. After the pandemic, we had dropped to 1515, then went quickly up to 25. And this year, we'll be at. So that kind of scale, that kind of growth is painful. It's hard. But I tell you what, one thing we don't have is a space constraint anymore.
[00:45:59] Speaker B: Yeah. You don't have that excuse anymore, and your customers don't have an easy reason to throttle the amount of business that they give to you anymore. So, new set of challenges, but you certainly broke through a capacity ceiling, Troy, when you bought this business. I just want to hear a little bit about you, and you're more than 20 years into the journey now. When you bought dame manufacturing for a couple of bucks, it was probably the biggest transaction of your life, if I remember correctly. I think, am I not mistaken that your mother helped loan you the money for the original transaction?
[00:46:39] Speaker C: Yeah.
[00:46:40] Speaker B: Isn't that right?
[00:46:40] Speaker C: Yeah, it's the story I told at.
[00:46:44] Speaker B: One of our conferences.
[00:46:46] Speaker C: Yeah.
It's the story of the love of two women, my wife and my mom.
We had a small inheritance from my grandfather when he passed, and then my mom. So 50,000. So I needed 300,000 to buy Dane up front. And this is 2001 money now, and we had 50 when we started to try to buy Dane. And I'll tell some of the listeners, maybe that might have a desire to follow in my path. I'm 57 now. I bought the company when I was 37. And with my mom's help, my mom came in and basically gave me her life savings. And so the amount of stress on me in the first five years to make sure that I made sure my mom got her monthly payment because it was a preferred stock transaction. She got preferred stock. I had all the common shares because stock sale. And mom then eventually got almost mezzanine financing rates, if you recall, I gave mom more money every year, a little bit more money, and same thing. I just ach the money on the first of the month. So for 1815 years, excuse me, 180 payments, mom got her money on time, and eventually she asked in 2016 to be paid out, just given her age and her situation in life. And I said, sure, mom. So I gave her back her capital and her upfront capital, 100% of it. And then I asked my accountants to calculate the interest rate, and they came back and they said, 17.85, troy. And I said, what's that? That's the compounding interest rate. You paid your mom for the money that she gave you? I said, oh, great, that's good. So mom got mezzanine financing rates, and I was happy to do it. I love my mom, and she was great. And then my wife obviously stands behind me and supports me every day in what I do by taking care of the house and making a nice environment for me to come home to with our children.
[00:48:36] Speaker B: It's just awesome to thank you for sharing that. I mean, you're in 600,000 sqft. You're five or six acquisitions in. You've done land acquisitions, you've done receivership acquisitions, northern european banks. You've bought businesses where you knew the owners. You bought businesses that you met at arm's length through platforms like axial. You've had a long arc to the journey. Now, I'm just curious, Troy, is this what you were hoping for? Is this what you were looking to do when you bought dame manufacturing?
Did you have a sense for what you wanted out of the next 1020 years? Just what were you imagining back then versus what's happened?
[00:49:19] Speaker C: Yeah, that's a great question. You're going to get deep into my soul on this one, and I hope your listeners don't fall asleep on the answer. I'll make it a short one.
My last job was when I worked for another man. Was like many great entrepreneurs. I lost my job. I got fired for no good reason. The owner was a quintessential entrepreneur that was never there. And he was a finance guy, and he had a big business, and I ran his factory for him. And every year I would get a new boss, I'd get a new president and come in. So I reported to the president, president reported to the owner. And the owner would be on site about one day every three months. And usually when he was on site, it was everyone's on pins and needles, and he would kind of rip some faces off and he'd want more financial performance. And he'd see me and he'd smile and he'd shake my hand and put his arm around me and tell me, keep doing the great job I'm doing for him, because I kept making him more and more money in the production area, out of clear blue, fifth president comes along. He lets me know he didn't like me. Day one, I was new school, he was old school. And I didn't do anything unethically or insubordinate to him. He just didn't like me, Peter. And sometimes when somebody doesn't like you, they get you out. They get you fired. Right? It's employment at will. Best thing that ever happened to me. So I sat down, I thought hard about what the hell just happened to me. I didn't see this coming. And I said, how can I make sure this feeling. I hate this feeling. I was a really good, solid cat and I was working on my master's at Madison at the time, UW University of Wisconsin. And I was going to school at night and there was a professor there that really impacted me. His name is Dr. Bob Pricer and he taught business 702 and seven three small business, management and entrepreneurship. And I was getting my mind soaked every Wednesday night from 06:00 to 09:00 every night with all this great business knowledge. I said, you know what I think the only way that doesn't happen to me again, I can't go be the president because my owner fires his president every year. I got to be the owner. So that was my getting realization that I needed to be the owner at the time. The plant that I ran for him was about 100 million dollar company. And I said, well, if David can be a jerk and run this company and have 100 million dollar business, well, I can be one of the good guys in the world, grow 100 million dollar business and run one and be as profitable. So that was my beginning of my journey, if you will. So I threw 100 million dollar bogey out there, started my company, me, just like you did off the kitchen table in your apartment in New York City. I got an idea. This is what I'm going to do.
Here we are 28 years later, after I had my design consulting business, then I bought Dane. And then you heard the rest of it from there. So I started my first company from scratch. So we're at 55 million this year, just short of 60 million, 59 million this year with Dan Therm at 18 and Dane at 39 and a half. So we're 60% of the way to the 100 million dollar bogey. And so, yeah, it has been like a burning desire deep inside my gut to have a hundred plus million dollar company. This owner is still alive. He's got houses in four cities. Majority of the time he spends his time on Marco island. So I hope in the next two years to make a trip to Marco island and hang out on the beach when he comes out at 05:00 to fish for sharks and say hello to him and thank him for letting me go back in 1995, allowing it to happen, because he wasn't there at the time. It was the president at the time, Stan, that let me go.
[00:53:06] Speaker B: I hope you fly a drone over yourself. I hope you get someone to fly a drone and record that conversation at the minimum for your own benefit, maybe for the benefit of those who come after you at Dane manufacturing or elsewhere, just to give people visibility into just how long the arc of life can be and be able to see something like that with their own eyes. I mean, it's just such a cool story. Troy, I'm so excited to have had a chance to hear the latest chapter that you've written.
Like you said, you're 65% of the way towards this huge bhag that you had laid out in your own mind 20 years ago. I don't think anybody would bet against you and your team now that you've 65 x the original Dane manufacturing business after they failed to do so for 85 years. It's really fun to hear the story and to see you and the team continue to write the chapters that you guys are writing. And I'm really excited to catch up with you again in the next few years here. And obviously, it was great for us to be a very small part of the Troy and Dane manufacturing story with some of the acquisition sourcing that we did for you. And thank you for the nice words, by the way, obviously, about Axial, obviously don't want this to ever be an advertisement for axial. Really just want to dive into the lives of entrepreneurs who are buying and building small businesses. And so this has been just a really great catch up with you on what you've done from here. Troy, do you feel know when you think about the next couple of years, particularly given the scale of the real estate acquisition that you made, the ability for you to vertically integrate more and more lines of manufacturing under a single roof, do you feel like you've got a big open ended, sort of organic growth opportunity over the next few years and that's where you want to be focused, or do you have m and a ideas that are in your mind for the next twelve to 24 months?
How are you spending your time and what are you thinking about when you think about where to go from here? You've got all this huge floor capacity now that you didn't have just a couple of years ago?
[00:55:17] Speaker C: Yeah. Great question, Peter. Well, thank you for the kind words.
I do want to take a 13 2nd pause and say, I don't operate in a vacuum. I've got a lot of great people that work for me at both companies. I got some great presidents. I got some great staff underneath them. Never underestimate the power of an a team that works for you. They're all a players. I've helped recruit many of them and handpick many of them, and I do get a chance to impact their lives a little bit and watch them grow and develop inside my organization. So I sending them to vistage and EA through vistage, as well as paranet and a few other things, but then really just letting them have autonomy to operate inside the organization and let them be their own entrepreneurial boss in charge of an area, if you will. Right. So I've got great teams and great people and great employees. It doesn't happen without them. And then right behind that is my great customers. Right. So it's about great employees that take care of great customers, and then from their efforts, we make some money. So thanks for letting me say that.
That said, then, I'm so excited for our future, not only with both organizations, because they've got those a teams and being able, and they've got all the right momentum. And so inside of Dane, we call it big mo. Okay, big mo. We've got big mo, both organizations. So there'll certainly be attention I'll have to give to big mo in both organizations so we don't lose it because it still is a good cycle, despite what the television wants to tell you and wants the consumers to believe in this political animal year that we have right now. I see another good 18 month run before we see the economy go to a little bit more of a softening. And I wouldn't call it a recession. I just call it a soft landing in 24 and a half. So that's what we see. So we're going to run that hard with our current customer base in organic. But I tell you what, I'm excited because for the first time in 20 plus years, I don't have that space constraint. Right. And so that just frees my mind to go, like, almost too many ways. Peter. So now my focus with the team, with my strategic leaders has been to say, okay, now we've taken care of all these issues and all these scale up issues, and you've got the staff, you've got the machinery capacity, you got the space. Now what do we want to be when we grow up?
Is kind of what I walk around my office saying to myself, and I'll be honest, I don't have the answer. I got a little more work to do for that. But I do think in our future it is probably rejoining axial again in 23, seeing what might be out there from a transaction standpoint. I know that a lot of the pes and some of the non private owners are getting a little skittish because the markets are really bad and interest rates are high and all of that. But 6% or 7% interest rate has been the lending rate that I've had. That's still really cheap money in my world, and I've paid 18% before. Right?
[00:58:28] Speaker B: Yeah.
[00:58:30] Speaker C: If we've got opportunity, and certainly we have the track record now as a team, having done it many times to acquire another bolt on brand and company, I'd want it to be very similar to Danthurm. I'd want it to come through the axial network. I'd want it to be proprietary.
That's where my mind's at right now. And then I'd want it to be a situation where we don't completely upend the target. I don't know that I want a third know. And so that's part of the challenge, right? Is to say we're going to make it a bolt on Peter and the real estate. We don't want the real estate, which means if we're going to move it, then we're going to disrupt a lot of lives. So I got to think through that in a compassionate way so I don't cause 100 people to lose their jobs in Toledo, Ohio, unless they were going to lose their jobs anyways. And then I can say, okay, you don't have these jobs in Toledo, Ohio anymore, but if you want to come to Wisconsin, I'll give you a job. And shouldn't you want to live in Wisconsin over Ohio anyways? No. Ohio is a nice place, but you get the point. And so I think if we can find the right situation and the right acquisition, we would definitely do that again, because that's the quickest way for us to take advantage of the open space that we have and the open canvas that we can paint on here. And I have the right team to be able to do it, to integrate it, and to generate the synergy and impact 100 more lives. So that's where my mind's at right now. I got a little more work to do before I can paint that canvas for you, but that's kind of my initial.
[00:59:59] Speaker B: Well, Troy, you've earned the right to take a breather and look out at the horizon line and spend a little bit of time figuring out how to paint the next chapter for the company. I want to let you go because I know you've got an upcoming meeting. It's just been great to catch up. It's really just every time that I catch up with you, I learn more about the founding story and the nooks and crannies and the details that were a part of it and also get a chance to learn more about how you think about running businesses and what you aspire to achieve with Dane. I couldn't wish you more good fortune and success on the way to $100 million. Like I said a few minutes ago, nobody would bet against you at this point and so look forward to watching you from the sidelines in the next few years here, Troy, and thanks again for giving me the time this morning.
[01:00:45] Speaker C: Hey Peter, thanks for having me and I hope some of the stories weren't too long and that some of your listeners garnered some inspiration as well as strong tactical ideas on the way to scale businesses as you go. Thanks for having me. It's great to reconnect with you, my friend, and thanks for all your help over the years. You have a great holiday season. Thank you, Troy yes sir. And you take care.
[01:01:14] Speaker A: If you enjoyed this episode, check out axial.com. There you'll find every episode of this podcast, as well as our recorded Axial member roundtables, some downloadable tools for dealmakers, Axial's quarterly league table, rankings of top small business acquirers and investment banks, and lots of other useful content that we've created over the course of time. If you're interested in joining Axial as either an acquirer, an owner considering an exit, or as A-M-A advisor, you can get started for
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