The FABRICATOR’s 2023 FAB 40: An inflection point for the metal manufacturing industry

The 2023 FAB 40 represents the metal fabrication industry at an inflection point. Some companies on this year's list aspire to become national, even global organizations. And considering manufacturing's pace of growth over the past several years, those aspirations might become real sooner than many expect.

This year's FAB 40 again reported record revenues. Some of the boost comes from material price inflation, but some of it comes from increased demand as global companies reshape their supply chains and the industry's best gain market share.

2022 will go down as a year of extraordinary growth. Many are still benefiting from 2022's tailwinds, too. For instance, Greg Frye, COO of Fort Worth, Texas-based Anchor Fabrication, will be working to open a new fabrication plant in Smithfield, Tenn., with a plan to hire more than 200 people. The operation will mainly serve a new, very large contract for truck bodies, and some welders are already hired and undergoing training. The company's Fort Worth plant employed about 70 welders last year. Now it has more than 100 with plans to reach 130. It also has more robots and more cobot welding cells.

Industrywide, growth opportunities like this are coming from increased spending on transportation, infrastructure, and, not least, semiconductors (what many consider "infrastructure" for the modern world). "Semiconductors are way up for us," said Steve Gore, chief commercial officer for Momentum Manufacturing Group, Georgetown, Mass. "Some of our work with warehouse robotics is up as well."

At the same time, worry remains about an inventory overbuild. One fabricator reported that a major contract dropped significantly for this very reason; a major customer had simply ordered too much too fast. It's anecdotal evidence of the slowdown reported by the Institute for Supply Management's Purchasing Managers’ Index, which has remained slightly below 50 (signaling contraction) for six months. Still, the degree of that slowdown depends on the sector a fabricator serves and its specific customer mix. Business isn't roaring like it was in 2022, but it's not falling off a cliff either.

Fabricators have diverse customer portfolios to thank. 2023 might lack 2022's eyepopping growth, but few among the FAB 40 expect revenues to decline. Despite talk of recession, black swans like the debt ceiling and a dysfunctional government, price and wage inflation, fabricators continue to innovate and grow.

Private companies continue to dominate custom and contract metal fabrication, and FAB 40 participation is, of course, voluntary. Regardless, the list does provide a good statistical slice of the industry—and that slice has changed tremendously just within the past decade.

Take the 2013 FAB 40, which detailed revenue from 2012. The No. 10 company reported $47 million in sales. This year's No. 10 reported $175 million. The top 10's collective revenue increase since the pandemic is even more striking. In 2020, revenues fell to $1.3 billion. This year's top 10 companies are collectively reporting nearly $3 billion in sales from 2022.

Moreover, fabricators near the top of this year's list are reporting annual capex expectations between $15 million and $25 million a year. That's more than the individual annual revenues for the Nos. 30 to 40 shops up until just several years ago.

Of course, revenue numbers alone only tell you so much. Yes, 2022 was a great year for many operations, with some reporting that they could have sold more if they were able to hire more. But the high revenue numbers also reflect higher material prices. A few FAB 40 shops reported that although revenue in 2022 hit a new record, actual volume shipped was about equal to 2019. High material prices also complicate the sales-per-employee metric. Some fabricators report extremely high sales-per-employee numbers. Some of that comes from better efficiency, but it also comes from the volume and cost of the material they’re handling. A structural fabricator handing big beams and plates might have slim margins but a sky-high sales-per-employee number.

Perhaps more telling is the rate at which revenue declines as you read down the FAB 40 list. Regarding this, the 2013 listing—the first reflecting the "long slog" recovery after the Great Recession—was the start of a gradual trend.

Early on, the FAB 40 list had just a handful of players that reported more than $100 million in sales, followed by a long tail of small players, most of which reported revenue between $10 million and $40 million.

That finding wasn't surprising. Many in the custom fab arena are happy to work at a small, lean enterprise. In fact, some entrepreneurs launch a fab shop because they like the work's hands-on, get-it-done nature—no bureaucracy, no politics, few silos or fiefdoms. Many hit a kind of revenue ceiling between $10 million and $20 million. A decade ago, the FAB 40 reflected this reality. On the 2013 list, the No. 3 company reported $170 million in revenue; the No. 4 reported just $91 million, No. 5 $60 million, No. 6 was at $49 million, and the long tail began gradually descending from there. On the 2014 list (showing 2013 revenue numbers), only $15 million separated the No. 20 company (reporting $26 million in sales) and the No. 40 company (with $11 million in sales).

A decade later, that long tail of smaller shops just isn't there. This year's No. 40 reported $46 million in sales—a revenue figure that would have earned a fabricator the No. 10 slot a decade ago. Throughout this year's list, revenue gradually rises with no huge jumps until the top five. Company participation is a contributing factor, but not a major one; overall, participating FAB 40 companies have remained somewhat consistent, especially near the top of the list.

Beyond this, though, the list reveals a changing industry, one where a fabricator buying $1 million-plus machines isn't particularly unusual. In 2013, the CO2 laser cutting machine still dominated the market; now they’re tough to find as shops turn to fiber lasers and the automation they need to be truly effective. On top of this, access to inventory (especially raw stock) has always been important in custom fabrication, and it became even more important during the supply chain chaos. In a niche that invests a lot in material and technology, size matters.

2023 is a time of transition. For some, the post-COVID economic boom keeps booming, especially for certain sectors—transportation, infrastructure, ag equipment. Demand for large, discretionary consumer products—think ATVs and RVs—are softening. That's no surprise in the current interest rate environment.

Still, this hasn't kept fabricators from investing. "We’re likely looking at about $16 million to $18 million this year," Anchor's Frye said. "That includes press brakes, fiber lasers, and a new tube laser. And we’re doing more automation with press brakes, panel benders, and lasers, and more welding automation, particularly with cobots."

Anchor isn't alone. Despite rising interest rates, tightening credit, and long lead times for new machines, fabricators are upgrading equipment like never before. The productivity of new technology and software is just too great to ignore.

Material availability has improved, and lead times have shortened for the commonly held stock. That said, fabricators have stepped up their purchasing efforts, finding just-in-case alternatives for various hardware or other items.

More fabricators on the FAB 40 have been on the acquisition trail over the past several years. Rising interest rates might force some companies to tap on the M&A brakes, but that still doesn't eliminate the fact that many fab shops have aging owners with thoughts of selling.

"We have a network of companies that we work with," Momentum's Gore said. "This industry is full of smaller shops. Many are our strategic partners. We’ve been working with some of them for 10 plus years. The owners are now looking to retire, and they care about their people. They know that our strategy is to come in and invest at a level that they can't. For instance, we bought [New Hampshire-based] H&M Metals two years ago, and we put several million of new investment in there, with a laser/punch combo machine, new press brakes, a tube laser and other machines. The previous owners couldn't do that."

The new, larger organizations also are reporting new sales opportunities. Most of the largest fabricators are ramping up cross-selling, especially if they’re working with previously independent plants.

"For instance, one customer that was doing work that involved large assemblies asked about another plant [of ours] that does a lot of light-gauge aluminum work," Frye said, adding that when the organization acquired three previously independent fabricators in recent years, "not a single one shared a customer between them." From that, he said, came cross-selling opportunities that spurred much of Anchor's recent growth.

Again, Anchor isn't alone. Not only do acquisitions help cross-selling, they also help lower revenue concentration. Sure, one fabricator might be a supplier to just a handful of large accounts, but if they’re a reliable supplier, and they’re purchased by a larger organization, cross-selling can ramp up and lead to greater revenue diversification. All this helps build not just a larger fabricator, but one that's financially resilient.

With consolidation and growth comes the old question: What to do with established brands? Some companies have moved toward bringing all acquired firms under a single brand. Others have taken a different approach.

Consider DeWys Metal Solutions (DMS) in Marne, Mich. In recent years, the operation acquired Grand Haven, Mich.-based ReFAB. "We did that to service some of our smaller accounts," said Mark Schoenborn, DMS president. He added that DMS had grown to a point where its operations were really suited to handle larger accounts. In this case, ReFAB kept its brand. ReFAB does have similar capabilities as DMS; it just offers them at smaller capacity levels. "In two and a half years since the acquisition, ReFAB has tripled in size," Schoenborn said. "It's been a real success story for us."

This effort complemented other recent launches, like DeWys Stainless Solutions (with dedicated equipment and technical expertise for stainless and aluminum fabrication), Wyze Designs (for design assistance), and American Grower Resource, a company that DeWys acquired several years ago dedicated toward the agriculture and greenhouse industries. "We keep adding to the portfolio," Schoenborn said.

Growing a FAB 40 company really is about developing a portfolio of services. It could be a customer-facing portfolio, like in DMS's case, or an internal portfolio that makes a large fabricator a one-stop shop for customers’ diverse needs, all served under one brand. Both paths, though different, can lead to the same positive result: a broad portfolio of work that can carry a fabricator through the craziness of the modern economy, black swans and all.

Like any investment portfolio, fabricators are building their service portfolio for the long term. Young people entering the field today will likely retire from a very different metal fabrication industry. Flexible automation, with software and machines working in concert, will be the norm. Data will drive decisions, both in sales and production. Capacity will be carefully managed across multiple factories and full visibility from quote to cash.

The FAB 40 today represents the industry at an inflection point. Some aspire to become national, even global organizations. Considering the pace of growth over the past several years, those aspirations might become real sooner than many expect.

Editor's Note: The FAB 40 list is prepared with the help of metal fabricators willing to share their revenue numbers and company information with The FABRICATOR and its readership. Emails were sent to almost 13,000 subscribers. Companies were asked to provide their 2022 revenue as well as their number of locations and employees. This list is created as a reference for the metal fabricating market. It is not intended to act as an official benchmark for the industry because participation is limited and independent verification of reported revenue from private companies is not possible. For information about participating in the FAB 40, contact Tim Heston at [email protected].