Translation: Original published in Finnish on 6/11/2025 at 7:30 am EEST.

Scanfil announced yesterday that it will acquire 80% of ADCO Circuits, an electronics contract manufacturer located in the Greater Detroit area of the United States. The strategic acquisition will accelerate Scanfil's growth in the Americas business segment and in the aerospace and defense industry, which accounts for 37% of ADCO's revenue.

In addition to the aerospace and defense industry, ADCO serves industrial clients in electronics manufacturing and assembly. Like Scanfil, ADCO focuses on complex low- and medium-volume products and demanding assemblies. In addition, the online ADCOproto enables rapid prototyping to support engineers' development work, which improves Scanfil's service offering to old and new customers.

In 2024, ADCO's revenue was 30.6 MEUR, EBIT was 3.5 MEUR and the EBIT margin was 11.4%. The production facilities are not included in the transaction, and IFRS 16 compliant depreciations reduce annual EBIT by 0.3-0.4 MEUR. The enterprise value (debt-free and cash-free) is 21.7 MEUR for 100%, and the estimated purchase price for 80% of the shares is 13.6 MEUR.

The completion of the deal requires approval from the US authorities, which is expected to be obtained in Q3.

ADCO seems to fit nicely as part of Scanfil on paper

In our view, the acquisition was not at all surprising, as growing the business and reducing customer risk through inorganic growth has been part of Scanfil's playbook for most of its history. In our interpretation, the company also slightly increased the emphasis on inorganic growth in connection with its 2024 Capital Markets Day, and the company already made the SRX acquisition in Malaysia and Australia last fall. 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. This means that Scanfil is only using a fraction of its firepower to buy ADCO. Similarly, from the perspective of revenue and earnings, the deal is relatively small for Scanfil, which, of course, limits the risk profile of the acquisition.   

ADCO, which operates in demanding industrial electronics like Scanfil, seems to us to be a good fit for Scanfil on paper. In addition, the company's business has a significant focus on the attractive aerospace and defense segment, where, in our understanding, Scanfil has so far only had individual customers. Scanfil also has only one factory in the large US market.  Thus, the companies are unlikely to have any overlap and the geographic coverage of Scanfil's production machinery will also be enhanced by the transaction. In terms of profitability profile, ADCO's business appears stronger than Scanfil's even when considering the IFRS16 adjustment, although the release only presented one year's figures for ADCO. We expect Scanfil to gain small purchasing synergies from the acquisition as volumes increase, but in our view the clearest value creation potential of the deal lies in the expansion of ADCO, the offering of ADCO's product range to Scanfil's existing global customers (and vice versa), a slight reduction in the group's customer-specific risks, and potentially also upside in multiples.

The purchase price seems low based on last year's figures

The purchase price (EV) corresponds to an EV/S multiple of 0.7x and an EV/EBIT multiple of 7x, calculated from ADCO's realized earnings, taking into account the IFRS16 adjustment for rents. The revenue-based multiple is roughly in line with Scanfil's own valuation, but due to ADCO's clearly better profitability than Scanfil, the EBIT multiple falls below Scanfil's valuation and, in our opinion, is absolutely low. Therefore, we believe that the transaction price also seems initially very attractive from Scanfil's perspective, although the point of view remains narrow due to the short track record.

In our view, the handling by the competition authorities is a formality in the fragmented industry, and we expect the transaction to be completed in Q3.