I first met Lindsey Crisp last summer at Research Triangle Park. He was attending a meeting about manufacturing, and the defense industrial base. I learned that he was CEO of a metal fabricator outside Washington, N.C., a few hundred yards from the Pamlico River, that does complex work for industrial customers and defense contractors.
This interested me, because North Carolina is trying hard to build its manufacturing base and its defense contracting business, and here was a company doing that.
I wanted to visit Beaufort County anyway to see Washington-Warren Airport, where a lot of interesting things are happening with drones. So I also arranged a visit to Crisp’s company – Carver Machine Works.
Carver has 45 employees who engineer, weld, and machine with great precision. Carver’s clients are some of the largest defense contractors in the country – names like General Dynamics and Northrop Grumman. In the 50,000-square-foot building that was equipped with help from Golden LEAF, it works on components that go in submarines and aircraft carriers.
Our defense industrial base depends on a lot of machine shops that work as subcontractors to primes. There are around 560 machine shops in North Carolina and they average around a dozen employees each.
Last summer, Carver was working on a component for a missile defense system that mounts to the mast of a destroyer. The system is designed to confuse anti-ship missiles with an electronic burst. “We’re essentially building the chiller system, the radiator for that, because creating electromagnetic energy creates a lot of heat, and we’re building the chiller system that keeps that cool.”
Carver is also overhauling components that are part of the catapult system that launches jets from an aircraft carrier. “We have some from the John Stennis on our shop floor right now,” he said. The 30-year-old carrier is currently at Newport News Shipbuilding for its mid-life refueling and overhaul, a lengthy process. Crisp went through the hull of another carrier, the Abraham Lincoln, when it was undergoing similar work for four years in the last decade. “That was the first one that we did catapult components on. The aircraft carrier was gutted.”
That’s what happens. The military likes to get a lot of mileage out of its very-expensive ships and jets, and periodic major overhauls are the way. Stuff gets pulled out and checked. Some components are replaced with upgrades and some are repaired in shipyards and military depots like FRC East in Havelock and by folks like Carver. Meanwhile, there’s a constant debate in the Pentagon and Congress over the number of ships, and what should be mothballed and what should be kept in service with overhauls, and ultimately, the outcome of this argument in Washington, D.C., determines how much repair work goes to machine shops in places like Washington, NC.
History of Carver
Carver was founded in the 1970s by Leroy Carver and his son, David. After Leroy Carver came back from World War II in the Pacific, he joined his father in the dredging business. In a growing Inner Banks economy, that was a good business to be in, pumping sand and cutting channels to create developable land in Beaufort and Craven counties. In particular, he was hired to dredge a channel by Texas Gulf to access phosphate deposits. What he saw, according to Crisp, was “a pile of worn pump casings and impellers.”
“He said ‘I bet I can weld overlay on that base material and repair this.’” A $4,000 piece of equipment could be overhauled for $2,000 and put back in service, saving Texas Gulf money and creating a business for Leroy Carver.
For years, much of the company’s business came from eastern North Carolina’s pulp and paper industry, rising to 75% of its work by the mid-2000s. But that work was declining, in large measure because of overseas competition, which had much cheaper labor and looser regulation of industry.
“China and India were eating our lunch in the heat exchangers and pressure vessel castings for the industrial equipment we build,” said Crisp. “A $100,000 tank, they could buy it from China for $30,000. And that was what we had in materials in it. That’s the reason we started pursuing defense work.”
Crisp’s background
Crisp, a 1994 accounting graduate of ECU, worked his way through college doing telephone collections evenings for a Greenville credit bureau. He went to work there after graduation, rising to become CFO of an affiliated finance company, and when he subsequently went into public accounting, the owner became his first big client. Over time, that client became chairman of the board of Carver Machine Works, which became an ESOP in 1999. (It would exit the ESOP in a management buyout in 2020.)
“He called me one day in 2005 and said, ‘Lindsey, we’re looking for new leadership and I’d like to put your name in the hat.” Crisp replied that he was headed to a partnership in his accounting firm in two years. “He said, ‘Hear me out.’”
Finally, Crisp decided to join Carver. “This was too interesting to pass up.”
Transformation of the company
After weathering the Great Recession, the company looked at its processes and customer mix. “We did a lot of work about eight years ago on what our value proposition is. We could build a gas grill in our facility, but it would cost four times what we could sell it for.
“We stopped doing things that didn’t make money and we started focusing only on the type of work that made money.”
This also meant examining the company’s win rate. “I bet it cost us $1,000 to $2,000 just to quote a job, because we’ve got engineers doing that,” said Crisp “So we took a hard look at that. ‘All right, we’re only winning 10% of this type of work from this customer, we’re not quoting that anymore.’ A lot of this stuff we learned the hardest way possible.”
Today, half of Carver’s business is industrial “build to print” and repair, and half is defense-related. The business is also segmented by how long it takes to sell it and complete. “Core work” takes a 30-40 day sale cycle, and 4-6 months to build. “Project work” takes longer from the time Carver learns about the opportunity until it wins a contract, perhaps 120 days. And then it can take 6-12 months to complete. The core work, say, a $12,000 job, is “what creates our churn, that keeps our people busy,” said Crisp. Whereas an aircraft carrier component project may come in at several hundred thousand dollars, or “our largest defense contract, a $2 million order that we got last December.” The core industrial work has grown 5-6% annually, but big defense projects have seen much greater growth.
The future
The machine shop industry is highly fragmented, with aging ownership. Private equity is already active in the space, said Crisp. “I get emails and calls, 15 a day, about acquiring Carver Machine Works,” he said.
But what consolidation requires, actually, is someone with Crisp’s financial acumen and experience in the industry. Acquiring machine shops requires knowing how to value the business and, as important, how to keep their folks. It requires an understanding of what scale can and can’t do. A lot of work is local. When something in a plant breaks, you don’t want to truck it four hours; you want a shop nearby. Defense work is less dependent on location.
Regardless of how the structure of the industry changes, it will continue to be crucial.
“I think our country’s seeing how important it is to have an industrial base, period, for our national security,” said Crisp. “And I think our country’s starting to understand what our welders and machinists and industrial mechanics really do, and the technical expertise and the craftsmanship that takes.”
