Scanfil continues its inorganic growth in Italy

 Translation: Original published in Finnish on 07/14/2025 at 07:21 am EEST

Scanfil announced yesterday that it will acquire MB Elettronica, an Italian electronics manufacturing service company, which we believe, on paper, fits Scanfil's profile well. The transaction also supports Scanfil's growth in Southern Europe and especially strengthens the company's foothold in the aerospace and defense industry. We find the valuation of the deal neutral, although the large share of the earn-out makes the valuation difficult to assess. Our preliminary assessment suggests that the value creation potential is reasonable, but it requires profitable growth, especially for MB.

The acquisition accelerates Scanfil's growth in Southern Europe and in the aerospace and defense industries

MB Elettronica has approximately 500 employees and four factories in Italy, the largest of which is located in Cortona, Tuscany. The strategic acquisition will accelerate Scanfil's growth in Southern Europe and in the aerospace and defense industry, which accounts for 37% of MB's revenue. In addition to the aerospace and defense industry, MB serves industrial, medtech and life science customers. MB has focused especially on design and high-mix, low-volume electronics manufacturing. According to the company, there are no overlaps with Scanfil’s existing customers, which further diversifies Scanfil’s customer base and creates growth opportunities through cross-selling.

MB's revenues for 2023-2024 were approximately 107 MEUR and 98 MEUR. EBITs in the same years were approximately 8.2 MEUR and 6.8 MEUR, corresponding to EBIT margins of approximately 7.7% and 6.9%. The company's enterprise value is at least 73 MEUR, in addition to which the sellers are entitled to an additional purchase price of up to 50 MEUR, which is determined based on the financial results for 2025 and 2026. The transaction will be paid in cash and financed with Scanfil’s existing credit lines. The completion of the transaction is subject to the approval of the Italian authorities and a key customer, which are expected to materialize during Q4.

MB seems to fit nicely as part of Scanfil on paper

In our view, the acquisition was not that surprising, as growing the business and reducing customer risk through inorganic growth has been part of Scanfil's playbook for most of its history. We also interpret that the company slightly increased its emphasis on inorganic growth at the CMD held last year. The company already made an SRX acquisition last fall in Malaysia and Australia, and announced the ADCO acquisition last month in the US. The only slight surprise in the transaction was the almost overlapping timing of the third integration project. Scanfil's balance sheet has strengthened significantly in recent quarters (cf. net debt/EBITDA 0.4x at the end of Q1), so we estimate that the company had over 100 MEUR debt capacity for acquisitions at the end of Q1. Scanfil is now using most of this firepower for the announced ADCO and MB acquisitions (depending, of course, on the realization of the additional purchase price). Similarly, from a revenue and earnings perspective, the MB acquisition is medium-sized for Scanfil, but strategically significant due to the increased exposure to the defense sector.

MB that operates in demanding industrial electronics like Scanfil, seems to be a good fit for Scanfil's profile on paper. In addition, the company's business has a significant focus on the attractive aerospace and defense segment, where we believe Scanfil has so far only had individual customers prior to the two ongoing acquisitions. Scanfil also has no factories in Italy, so the company probably has no overlaps at all, and the geographical coverage of Scanfil's production machine also improves with the deal, although the addition of four, on average, rather small factories to the portfolio may not be entirely optimal. After the transaction is completed, Scanfil will form a new customer segment, Aerospace & Defense, with its competence, manufacturing and product development center located in Italy. In terms of its profitability profile, MB's business appears roughly similar to Scanfil's, at least for the past two years. We expect Scanfil to achieve minor purchasing synergies from the transaction as volumes increase, but the clearest value creation potential of the transaction depends especially on successfully growing MB profitably (incl. capitalizing on the good prospects in the defense sector) and on successful cross-selling.

The purchase price seems netural at best based on last year's figures

The purchase price, excluding the earn-out (EV) corresponds to an EV/S multiple of 0.7x and an EV/EBIT multiple of 11x, calculated from MB's realized result. Both multiples are roughly in line with Scanfil’s own valuation. Therefore, the purchase price is not particularly cheap for an unlisted contract manufacturer, but at best seems neutral from Scanfil's perspective. However, it should be noted that the earn-out is quite substantial relative to the purchase price (we suspect this is particularly linked to the strong, yet still uncertain, outlook for the defense sector), and the determination of the earn-out terms was not typically disclosed. The materialization of the earn-out can significantly change the transaction's valuation picture, although inherently, a high earn-out is, in our view, a good problem to have.

In our view, the competition authority review is a formality in a fragmented industry, and we expect the deal to close in Q4. Scanfil will hold a press conference concerning the deal on Tuesday July 15, at 11.00 am EEST, which you can join here.