The $2.2B Aerospace Roll-Up Nobody Talks About | Bryan Perkins and Novaria Group

In this 5 Minutes in the Lower Middle Market episode, we explore Novaria Group, which has completed 27 acquisitions since 2011 across niche aerospace and defense manufacturing.

The broader lesson has little to do with aerospace itself. It’s about how great lower middle market businesses avoid commoditization, build layered moats, compound through disciplined acquisitions and create proprietary deal flow through long-term relationships.

0:00 “We are not a product business, we are a business model business”
1:40 Avoiding commoditization and building layered moats
2:40 Why simple-looking businesses are often extremely difficult
3:23 The danger of underwriting heroic operational turnarounds
3:50 How Novaria built mostly proprietary deal flow
4:13 Centralized controls, decentralized operations
4:44 The bigger lesson: boring niches compound quietly

Transcript

SPEAKER_00 0:00

Welcome to five minutes in the lower middle market, where I break down the best ideas about buying, building, and owning small businesses. And this one is very special because there is a story and a company I'm sure you haven't heard. It's called Novaria Group. And this is a story you should study. Because on the surface, this is an aerospace and defense platform. But if you go underneath, it is a case study in again, yes, buying traditional businesses, but also avoiding commodization and building emotes in those unsexy corners of the market. And then compounding through disciplined acquisitions, something we've seen so many times. But again, I hope you're gonna see some few interesting lessons from this. Because since 2011, they've done close to or around 20 acquisitions. That's what I found from their website. But most importantly, you always want to see how the founder thinks and how the team thinks on what they build. The founder, the CEO Brian Perkins, have said that Nova Area is not a product business, it is a business model business. And he describes the model as high mix, low volume, low relevant cost products, what he calls esoteric products. A lot of buyers look at the company and ask, what product does it make? Maybe a better question to ask is what kind of business model is this? Does it have pricing power? Does it avoid commodization? Does it sit in a niche where customers care more about reliability than squeezing the last penny? And that is how Novoyeria seems to think. The founder says the immediate no for them is commodization. And the yes is when they can see intellectual property, processed know-how, material science, and unit economics that create a real edge. He talks about the layer cake of protections, and this around process IP, explicit IP, daily discipline, and unit economics. Again, very useful phrase. I haven't heard this before. Layer cake of protections. Because in the lower middle market, really the best businesses are not protected by one giant moat, they are protected by many smaller ones stacked together. And I wrote down a few. So it could be a weird process, long customer history, technical know-how, tooling, embedded relationships, quality systems, low unit costs on hard to make parts. Because one layer alone may not be enough. But together they make the business very hard to attack. And that leads to another great Novaria lesson. What looks simple from the outside is not often simple at all. The founder gives the example of a washer for an airplane. Many people think it's just a washer, but then he walks through the actual reality, which is raw material choice, tooling, dimensional accuracy, coatings, inspection, paperwork, and years of accumulated know-how. Even a small aerospace washer can require major setup decisions and tens of thousands of dollars in tooling before you can even earn a meaningful return. Another thing I really liked, they do not underwrite Herculine change. The founder says very clearly: if you want success, don't bank on some massive overnight transformation. Be patient, go to work every day, and keep improving incrementally. You buy a good business or good businesses, you just make them a little better every single day. You then redeploy capital and then you just do it again. You repeat. Another thing, Noveria says around 80% to even 90% of its deals have been direct. And the founder explains that proprietary deal flow comes from patience, credibility, and long-term relationship building. He literally says patience creates incredible outcomes. And he explains that he's comfortable building a relationship that may unfold over 10 years. And finally, something for the operating model. Novaria uses what founder calls centralized controls, decentralized operations. So in plain English, common systems at the center, but real autonomy at the factory or business unit level. This is something and a great model for many buy and build operators. You standardize what should be standardized, and you leave local accountability where it belongs. One lesson from today's episode: some of the best lower middle market businesses are very boring, proprietary, and built on disciplined repetition. Just very good niches, very strong modes, very patient sourcing, and relentless daily improvement. That's it for today's five minutes in the lower middle market. Wherever you listen or watch this episode, don't forget to subscribe. And talk to you in the next video.