Brawnier M&A Outlook For Lean Manufacturing Technologies

By Craig Barner

Merger & acquisition activity could get brawnier as smarter approaches to manufacturing make product assembly leaner and more responsive to demand.

Production concepts, such as lean manufacturing, six sigma and total quality management, have been around for decades, but now new ideas, such as distributed manufacturing, are being tried. Whatever the approach, these models seek to improve the way products, from furniture to automobiles, are made. In addition, powerful new tools—robots, laser cutters, printed electronics, computer-numerical-control (CNC) milling machines, three-dimensional printing and scanning systems—are increasingly being employed in manufacturing.

These trends point to the need for more funding so that technology providers and manufacturers can upgrade their systems, products and offerings to stay competitive. Increased M&A activity in these areas is already happening, and some observers think deal flow—at least in some areas—will get bigger.

Lux Research, a Boston-based analysis firm, recently issued a report on distributed manufacturing. Lux has done a lot of work with chemical and construction companies and advised such organizations as General Electric, Saudi Aramco and Germany’s Siemens, said Mark Bünger, Lux’s research director.

Distributed manufacturing, or DM, is a “very new” concept, and awareness of it is growing, Bünger said. DM is small-scale and involves rapid design and production. It has the potential to be disruptive, like the Internet, smart phones, social networking and cloud computing.

Some early adaptors of DM are pursuing tweaks to the idea or their own models, such as Mitch Free, CEO of ZYCI, an Atlanta-based provider of CNC machining and other services. He uses Amazon’s elastic-compute-cloud concept, which is a web service that provides resizable computing capacity in the cloud to make cloud computing easier, as a model for a strategy he terms the “elastic manufacturing cloud.”

ZYCI uploads a customer’s 3D drawings of a product, quotes a price and can produce parts via CNC machining, injection molding and 3D printing as quickly as the next day, Free said. Just 10 years ago, he said, the same processes could take as long as a month.

Through the new approaches, a small amount of parts can be designed and manufactured quickly and cheaply, rather than in high-volume, centralized processes, Bünger said. Under the old approach, product innovations could take five years. “That was fine in the 1960s,” he said.

Today, Bünger said, a manufacturer can produce a fractional amount of a single product, while also making “double to 10 times” the number of product types. Technologies, like 3D printing and other systems, are the most conspicuous tools, but new techniques for old technologies, such as welding, are helping drive manufacturing change, too.

He points to Phoenix-based Local Motors as an example. Started last decade, the company has raised $50 million to date and now makes 3D-printed automobiles, a spokesperson said. It has since launched other products, including motorcycles and bicycles, and is now collaborating with GE, Bünger added.

Another example is Pebble, a Palo Alto, California-based smartwatch manufacturer, Bünger said. In May 2013, it raised $15 million in Series A funding led by Charles River Ventures. Use of existing resources is a key concept behind DM, Bünger said, and Pebble used a pop-up supply chain provided by Dragon Innovation, a Cambridge, Massachusetts-based supplier of manufacturing services, to start production.

Industries that involve electromechanical systems make the best fit for DM-type innovation, Bünger said. Commoditized products, such as plastic bags, might not be well suited to the model.

M&A among technology providers is possible under smart-manufacturing concepts, Free contends. He points to Proto Labs, a Maple Plain, Minnesota-based manufacturer of CNC-machined and injection-molded custom parts. In February 2012, it completed a public offering that raised $79.1 million. Last April, Proto Labs acquired FineLine Prototyping Inc., a provider of additive manufacturing services, for an undisclosed amount.

But young companies involved in DM need alternative funding as venture capital is slowly “ramping down” over the long term, Bünger said. In addition to crowdfunding, innovation competitions and “conscious capital,” which is provided to firms that implement practices benefiting human beings and the environment, he said investment via corporate venture capital and private equity are good sources of capital for DM.

Manufacturing is changing. If automobiles and other complex systems can be made via 3D printing, could trucks, ships and skyscrapers be far behind?