Spring 2015 issue of Horizons

There’s been a lot of press that there is a resurgence of manufacturing in the U.S. Some have argued that this is a result of cost structures in other countries rising so it is less advantageous to manufacture overseas. What trends are you seeing? Are you seeing certain countries emerge as strong players in manufacturing certain types of product? unsurpassed. The trend back to the U.S. is partially because U.S. manufacturers keep getting better, but largely because some companies rode the China bandwagon and moved products that never should have been moved. Cost structures are always changing, but the U.S. competes on technology, rather than wage rate. There will always be lower cost countries with significant cost advantages in certain industries. We’re unlikely to see Nikes or iPhones being made in the U.S. any time soon. Emerging countries like Bangladesh, Indonesia and Vietnam can offer very low wages but often lack the infrastructure to be accessible for small companies. Mexico is becoming a little safer and regaining status as a viable near-shore option. There are many business owners who are currently considering when the right time to exit the business is and how to maximize value. What type of sourcing strategies are available for a business owner that is seeking an exit in the near future and trying to maximize value? Overboe: Some of the strategies we employ can result in cost savings in as little as 30 days. More complicated supply chain strategies take more time but can help business owners improve earnings on a predictable schedule. Regardless of an exit, sourcing improvements create sustainable earnings growth which puts more money in the business and increases valuation. Overboe: I think the U.S. is the best manufacturing base in the world. Our technology and productivity are

Nathan, along with his partner and co- founder, Jim Pratt, developed significant operational experience while working at global manufacturing companies and later as leaders in sourcing for a large private equity firm. In your years working at a private equity firm, can you share the role you played in working with portfolio companies to generate cost savings, and how critical were the operational savings you were tasked to find on the investment thesis? Overboe: When evaluating a potential acquisition, our primary goal was to find ways that the company could change how they purchase products to drive cost reductions. A few hundred thousand dollars of cost savings can often influence an investment decision; several million can make it. As you think of middle market businesses, what type of company is ripe for cost savings initiatives through international sourcing strategies? What type of company should not consider international sourcing? Overboe: I think all companies should be aware of international sourcing opportunities and limitations. Companies that buy value- added components generally see the most savings from global sourcing. Good low cost country sources often have a 40% cost advantage on value-added components like injection molded parts, machined castings, printed circuit boards, etc. Labor content, duties, freight costs, etc. make other commodities like coil steel or corrugated boxes less attractive for global sourcing.

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