The story of Precision Partners Inc. may be an allegory for the direction that the precision tooling industry is taking.

Formed in March by the consolidation of five small precision tooling companies, Irving, TX-based Precision Partners produces precision metal parts, tooling and assemblies in industries ranging from agriculture to automotive.

About 30% of the company's business is automotive. Among products it manufactures are heads and blocks for racing engines, transmission cases and small precision parts for antilock brakes. The company supplies both automakers and other Tier 1 suppliers.

Chairman and Chief Executive James E. Ashton sees the precision tooling industry as “fragmented” and therefore ripe for consolidation. He notes two important trends in the auto industry: First, original equipment manufacturers (OEMs) are increasing outsourcing. Second, automakers prefer to rely on just a few primary suppliers. Some, he says, eliminate their in-house machining and pass on to suppliers the responsibilities of sub-assembly as well as process engineering and design assistance.

These seem to be the trends that private equity firm Saunders Karp & Megrue had in mind when it formed Precision Partners. For a total of $165 million, it bought Mid State Machine Products, Galaxy Industries Corp., Certified Fabricators Inc., General Automation Inc. and Nationwide Precision Products Corp. to form a company that takes in a combined $135 million annual revenue.

Buddy Gumina, a vice president at SKM, says that in creating Precision Partners, “We want to be the leading contract manufacturer of difficult-to-produce parts for leading OEMs.”

Pricing pressure from OEMs is something that can drive smaller precision firms out of business or toward mergers, but Mr. Ashton has not noticed a drastic increase in pressure in recent years. Instead, he thinks that customers are expecting continual price reductions from long-term suppliers and increasingly are looking for longer-term partnerships with suppliers to avoid annual bidding contests.

However, Mr. Ashton thinks that precision tooling customers now are more concerned with service than price. This makes diversity, rather than just size, an important end for precision firms. This way, they can move toward supplying modular assemblies to OEMs.

Mr. Gumina says that consolidating several precision parts manufacturers can provide a safeguard against market downturns if the individual companies supply to a diverse group of industries.

Precision Partners expects to acquire four to six companies a year, but plans to remain somewhat decentralized in order not to disrupt each company's unique management style and customer relationships.

It's a balance precision tooling companies have to strike, Mr. Ashton suggests: big and diverse enough to provide a wide range of services, but “small” enough to remain committed to individual customers.