Specialist
Former SVP at Element Materials Technology Group Ltd
Agenda
- Competitive positioning of Element Materials Technology vs SGS (VTX: SGSN), Intertek (LON: ITRK) and Bureau Veritas (PAR: BVI)
- Analysis of Element’s verticals strategy, including opportunities for further development and potential of connected technologies and life sciences
- Organic growth – pricing and volume outlook
- Customer dynamics and outlook
Questions
1.
What are your thoughts on the potential sale of Element Materials Technology, including the timing and rationale?
2.
How do you think about a trade buyer vs another PE owner as a potential purchaser of Element?
3.
Could a trade buyer give a potential premium on acquiring Element because synergies exist at a very large scale? Alternatively, do you get fairly limited synergies when thinking about combining some of the larger players?
4.
Element is expected to be marketed off a range of EUR 200m-300m of EBITDA. What’s your best estimate of where it’s likely to come in on the range?
5.
What organic growth might Element have achieved over the last 3-5 years? How might that break down between volume and pricing?
6.
What is your 3-5-year outlook on Element’s organic or volume growth? The company has made numerous acquisitions but you mentioned organic growth is quite difficult to delineate because it changes a lot, depending on how the end markets are developing.
7.
Is there any meaningful difference in the unit economics of Element’s R&D work vs production work?
8.
What’s the typical contribution margin in Element’s R&D work vs production work?
9.
How does Element’s sales cycle work? Does it capture the R&D work on a lower contribution margin and then the production work is won as that new product comes to market?
10.
Do you think there is any scope for commercial synergies between Element’s R&D and production, or is it too complex to attempt?
11.
How does Element focus on pushing sales to increase customer share of wallet vs capturing new first-time customers?
12.
How does Element not hunting for increasing wallet share or capturing new customers sit within the industry structure? Are competitors similarly unaggressive in winning new business and this is how margins have been maintained in the sector? The sector has a quoting pricing mechanism which could lead to quite intense pricing competition.
13.
Is it too difficult for Element to successfully win volume over peers on existing and new customers while also improving pricing power? It sounds like a very nice situation to achieve both. Are there arguments against this strategy?
14.
Could you elaborate on the organisational changes at Element? You mentioned the changes to geography and the strategic account management team – the latter intended to increase customer share but was disbanded. What do these organisational changes indicate about the strategic direction?
15.
To what extent might you lose synergies because of being unable to operate across different geographies? Presumably commercial synergies could be lost if sales report into operations and there are VPs for different operations.
16.
Are there any downsides to Element’s seemingly operator-focused position? I imagine an upside is that it contributes to the company leading on quality. Could a low-cost strategy be a winner in this sector – while a differentiator strategy of quality eventually loses out – or will being focused on quality always be essential?
17.
How strong do you think Element’s verticals strategy is? The company’s acquisitions seem to suggest a focus on connected technology and life sciences. Is it missing out on other opportunities by focusing on these two verticals?
18.
Are there any other interesting areas that Element is forgoing by focusing on the connected technology and life sciences verticals?
19.
You mentioned it’s sensible for Element to focus on life sciences, but it isn’t considered one of the top three players. Are there any meaningful disadvantages of this? How does it play out when trying to win? It’s difficult to come up with a reason for it not being good, given our discussion about the challenges of executing on commercial synergies. It hopefully operates in the opposite way here, as a positive reason for the company’s life sciences positioning.
20.
Is the global scale a meaningful disadvantage, given the localised nature of the customer procurement teams? Alternatively, is there density in the right pockets so this doesn’t operate as a huge disadvantage?
21.
What number positioning might Element have vs peers in connected technologies and EV?
22.
How do you assess the synergies that can be leveraged from expanding into new verticals? How much of the core business can you leverage making those kinds of expansions? Could you assess how Element’s connected technologies might compete against a pure-play connected technology testing business? Are there any meaningful synergies that play a role there?
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