Observations of small-to-medium size EMS players in the DACH region

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The fragmented German market consists of a number of small players that overtime selectively are given the chance to grow organically through primarily a “follow your customer” approach. Such an approach permits for revenue and operational growth, allowing for service offerings to be extended and capacities to be increased. Nevertheless, numerous key problems are prevalent with such an organic growth model, which can particularly constrain the valuation assessment of businesses, MP Corporate Finance states. The “follow you customer” approach in most cases leads to a majority revenue contribution sourced by one main customer, which causes customer dependency, thus when the main customer decides to reduce orders or switch suppliers this impacts the business greatly in any given year. Due to the operational concentration on the key customer, the second disadvantage brought about is the narrow application market focus. While small customers may originate from other application markets the diversification effect is not prioritized upon as well as efforts to develop certain market specific production processes or certifications. This reduces the attractiveness of the business and ultimately results to a lack of competitiveness, which is a common feature seen in German mid-market EMS firms. The importance to obtain industry specific certifications in order serve and acquire a diversified portfolio of clients is crucial for long-term sustainability as well as to differentiate oneself from the competition. Moreover, distinguished production processes such as traceability are current trends that clients wish to be offered along the entire EMS value chain. This is an industry prerequisite that sets the bar for being an established "industry 4.0“ player. A company that has implemented a traceability system into its process is the Austrian company Melecs, an internationally active switchgear and electronics manufacturing services provider. Given the companies performance, it recently had the opportunity to acquire the Mechatronics business Leno Electronics GmbH from the world’s leading producer of man-made cellulose fibres, Lenzing AG. MP Corporate Finance acted as the exclusive financial advisor on the disposal of Lenzing AG’s non-core business units in order to enable room to strategically focus on growing its main business of producing man-made cellulose fibres.