Podcast Title: Acquiring Minds
Host: Will Smith
Episode: How to Buy & Transform a 120-Year-Old Manufacturer
Release Date: February 20, 2025

Introduction

In this compelling episode of Acquiring Minds, host Will Smith engages in an in-depth conversation with Lucas Phillips, the owner and transformer of Newark Auto. Lucas shares his journey of acquiring and revitalizing a 120-year-old manufacturer of interior upholstery parts for vintage automobiles. This episode delves into the challenges, strategies, and successes Lucas experienced while transforming Newark Auto into a thriving business with a robust direct-to-consumer (D2C) e-commerce presence.

Lucas Phillips: From Startup Founder to Acquisition Entrepreneur

Background and Entrepreneurial Journey

Lucas Phillips ventured into entrepreneurship at a young age, starting with a brick-and-mortar coffee business during his college years at Northwestern University. He co-founded Brew Bike, a student-run coffee venture that expanded to multiple campuses. Despite initial success, Lucas found the pressures of traditional equity financing and the relentless growth expectations unappealing.

Lucas Phillips [09:37]: "I didn't enjoy the practice of needing to constantly raise more equity finance financing for some rocket ship outcome that is very improbable."

Influenced by his family's history of small business ownership and seeking greater autonomy, Lucas pivoted towards Acquisition Entrepreneurship (ETA), aiming to buy and build existing businesses rather than starting from scratch.

The Decision to Acquire: Shifting from Startups to Established Businesses

Choosing Acquisition Over Startups

Lucas opted for the acquisition path to leverage his operational experience and avoid the uncertainties of startups. He was drawn to businesses with tangible products, influenced by his upbringing around his father's furniture business. This background instilled in him a preference for physical products over service-based businesses.

Lucas Phillips [20:54]: "I knew I wanted some a physical product business not a services business and that was just because I grew up with my, you know being around my dad's business furniture business."

Acquisition of Newark Auto: Identifying and Closing the Deal

Developing the Acquisition Thesis

Lucas crafted a precise acquisition thesis focused on digitally transforming a manufacturing business. He sought companies with unique, non-commodity physical products that primarily sold through B2B channels but had the potential for D2C expansion. His target was a business with around $500,000 in Seller's Discretionary Earnings (SDE), allowing for manageable financing with family support.

Lucas Phillips [22:23]: "There are companies out there with a physical product that is being distributed B2B. That physical product is somehow differentiated. It's not just a commodity good."

Finding Newark Auto

Utilizing his target statement and leveraging connections from the Acquisition Lab, Lucas discovered Newark Auto—a manufacturer specializing in replacement carpeting and rubber mats for vintage cars. The business operated with inefficiencies, such as outdated Microsoft Fox Pro systems and manual processes, presenting a ripe opportunity for modernization.

Will Smith [31:31]: "What was the business model and how did it fit your E. Commerce Izabell criterion?"

Lucas Phillips [31:44]: "Thousands of these patterns and all of my sales are these long tail. Right. Search terms on Google where somebody's looking for, you know, carpet for a 1950 Packard..."

Closing the Deal

Lucas moved swiftly, finalizing the acquisition within approximately 60 days. Securing a favorable SBA loan with a fixed interest rate played a critical role in the acquisition's financial viability.

Lucas Phillips [44:38]: "I paid three quarters of a point more to fix it... there's only one direction they can go."

Post-Acquisition Challenges: Staffing and Operational Overhaul

Staffing Issues

Upon taking over Newark Auto, Lucas encountered significant staffing challenges. The inherited team displayed poor punctuality and commitment, leading Lucas to implement strict performance standards. Despite offering substantial raises, only two seasoned employees remained, highlighting the cultural shift required to drive growth.

Lucas Phillips [47:49]: "There were five or six manufacturing workers... none of them were showing up to work on time."

Lucas Phillips [58:08]: "I don't think the amount that somebody earns is correlated to their qualities as a human being..."

Personal Struggles

Balancing the pressures of acquisition and transformation, Lucas faced personal hardships, including anxiety and the end of a long-term relationship. He sought therapeutic support to manage his mental health, ensuring he could focus on steering Newark Auto towards success.

Lucas Phillips [50:28]: "I was an anxious wreck... I was addressing that and at the same time I was addressing the problems in the business."

Operational Transformations: Modernizing Newark Auto

Implementing Advanced Systems

Lucas spearheaded the modernization of Newark Auto by introducing cloud-based ERP systems, replacing outdated software, and integrating efficient shipping solutions. These technological upgrades streamlined operations, reduced costs, and laid the groundwork for scalable growth.

Lucas Phillips [62:46]: "We implemented a cloud ERP in the first year of ownership... replacing it with something new."

Manufacturing Enhancements

In the factory, Lucas invested in CNC cutting machines, transitioning from manual scissors to programmable machinery. This shift not only increased production efficiency but also ensured consistency and quality in Newark Auto's products.

Lucas Phillips [65:02]: "I needed to convert the patterns to digital files that could be pulled up on a computer and just cut on a CNC machine."

Financial Strategy: Leveraging SBA Loans and Family Support

Securing Favorable Financing

Lucas utilized an SBA loan structure, securing 90% financing at a fixed 6% interest rate for ten years. This strategic financial decision protected Newark Auto from potential interest rate hikes, ensuring stable debt service obligations.

Lucas Phillips [44:38]: "90% SBA loan, 6% fixed interest rate for 10 years... one of the best decisions I've made since buying this company was fixing."

Family Assistance

With support from his family for the down payment, Lucas minimized personal financial strain, allowing him to reinvest profits back into the business for modernization and expansion.

Lucas Phillips [68:27]: "I'm not really paying myself... I haven't really been taking much of a salary out of the business."

E-Commerce Development and Revenue Growth

Building a Robust Online Presence

Lucas transformed Newark Auto's sales strategy by establishing a direct-to-consumer e-commerce platform. Unlike the traditional B2B dealer-centric model, the new Shopify storefront enabled direct sales to enthusiasts searching for specific vintage car parts.

Lucas Phillips [71:25]: "The site has just been an iterative approach for years... generating more sales from the website than we are from all of the dealer accounts."

Iterative Optimization

Embracing an iterative approach, Lucas continuously optimized the website, enhancing user experience and conversion rates. This method-driven evolution of the e-commerce platform significantly contributed to sales growth.

Lucas Phillips [71:25]: "Building a website has been a very iterative process... improving our conversion rate."

Revenue Impact

Under Lucas's ownership, Newark Auto experienced a remarkable 60% increase in overall sales, with over a third of revenue now attributed to D2C e-commerce channels.

Lucas Phillips [74:07]: "The business has grown from about a million and a quarter year in sales when I bought it. And we did just under 2 million in 2024."

Strategic Acquisitions: Expanding Product Lines and Market Reach

Tuck-in Acquisitions

To bolster Newark Auto's catalog, Lucas pursued strategic acquisitions of complementary businesses. Notably, he acquired a headliner manufacturing company and a specialized Porsche parts business, integrating their unique patterns and products into his operations.

Lucas Phillips [92:38]: "I was able to acquire it for, I think, 50 grand... We're in the process of spinning it back up now."

Digitizing Intellectual Property

Lucas focused on digitizing the acquired patterns, migrating them into a scalable manufacturing system. This initiative enhanced Newark Auto's ability to swiftly integrate new products without incurring significant overhead costs.

Lucas Phillips [96:45]: "I needed to convert the patterns to digital files that could be pulled up on a computer and just cut on a CNC machine."

Scaling Through Intellectual Property

By amassing a vast library of unique patterns, Newark Auto created a significant moat, distancing itself from competitors and establishing a dominant market position within the niche of vintage automobile parts.

Lucas Phillips [38:42]: "There's a moat around these patterns that we have."

Personal Insights and Lessons Learned

Effective Leadership and Management

Lucas evolved into a decisive leader, learning to fire underperforming staff promptly and establishing clear company values. This shift was crucial in fostering a productive and committed workforce aligned with Newark Auto's growth objectives.

Lucas Phillips [62:20]: "I've learned that when I start thinking, is this person dead weight... it probably is the right time to talk to them."

Financial Prudence and Reinvestment

Prioritizing business growth over personal remuneration, Lucas demonstrated financial discipline by reinvesting profits into technology and acquisitions. This approach, though initially capital-intensive, positioned Newark Auto for sustained expansion.

Lucas Phillips [68:27]: "I'm not really paying myself... I kind of knew some of this going into it and was okay with that."

Navigating Challenges with Resilience

Facing both operational hurdles and personal struggles, Lucas exemplified resilience. His ability to manage anxiety and maintain focus on business objectives was pivotal in overcoming the initial turmoil post-acquisition.

Lucas Phillips [51:01]: "I was an anxious wreck... I went on an SSRI for a couple years to deal with..."

Conclusion: A Sustainable and Expansive Business Model

Lucas Phillips' journey with Newark Auto underscores the transformative power of acquisition entrepreneurship. By meticulously modernizing operations, leveraging e-commerce, and strategically acquiring complementary businesses, Lucas has not only revitalized a century-old manufacturer but also poised it for future growth. His story offers invaluable insights for aspiring entrepreneurs aiming to acquire and transform established businesses.

Notable Quotes with Timestamps

• Lucas Phillips [09:37]: "I didn't enjoy the practice of needing to constantly raise more equity finance financing for some rocket ship outcome that is very improbable."

• Lucas Phillips [20:54]: "I knew I wanted some a physical product business not a services business and that was just because I grew up with my, you know being around my dad's business furniture business."

• Lucas Phillips [38:42]: "There's a moat around these patterns that we have."

• Lucas Phillips [44:38]: "I paid three quarters of a point more to fix it... there's only one direction they can go."

• Lucas Phillips [62:20]: "I've learned that when I start thinking, is this person dead weight... it probably is the right time to talk to them."

• Lucas Phillips [68:27]: "I'm not really paying myself... I kind of knew some of this going into it and was okay with that."

Key Takeaways

1. Strategic Acquisition Thesis: Identifying businesses with unique, non-commodity products and B2B focus ripe for D2C transformation can unlock significant growth potential.

2. Operational Modernization: Investing in technology and efficient systems is crucial for scaling and enhancing manufacturing processes.

3. Financial Strategy: Securing favorable financing terms and reinvesting profits strategically supports sustainable business growth.

4. E-Commerce Integration: Developing a robust online presence and iteratively optimizing it can significantly drive revenue growth.

5. Resilient Leadership: Effective management, decisive action, and personal resilience are vital in navigating post-acquisition challenges.

6. Strategic Acquisitions: Tuck-in acquisitions of complementary businesses can expand product lines and reinforce market position without substantial overhead increases.

About Lucas Phillips

Lucas Phillips is the owner and transformation specialist of Newark Auto, a century-old manufacturer specializing in interior upholstery parts for vintage automobiles. With a background in startup entrepreneurship and a passion for physical products, Lucas has successfully modernized Newark Auto, integrating advanced manufacturing technologies and building a strong D2C e-commerce presence. His strategic approach to acquisitions and operational excellence has positioned Newark Auto for sustained growth and market leadership.

Contact Lucas Phillips:

• Email: lucas@newarkauto.com
• LinkedIn: Lucas Phillips

This summary captures the essence of Lucas Phillips' transformative journey with Newark Auto as discussed in the February 20, 2025 episode of Acquiring Minds. For more insights and detailed strategies on acquisition entrepreneurship, subscribe to Acquiring Minds and explore their YouTube Channel or sign up for episode summaries at acquiringminds.co.