5 Questions With…Leland Lewis, Managing Partner, Key Principal Partners

By Leland Lewis

1. You just bought MC Assembly Inc., an electronic manufacturing outsourcer based in Florida. What is attractive about electronic manufacturing?

The market for outsourced manufacturing of electronic products is at $130 million to $140 million a year globally, and growing. More and more electronics companies are deciding that putting together electronic products is not a core competency. For instance, if you buy a cell phone today, chances are Motorola didn’t actually make the cell phone, but outsourced it to a company like ours. MC Assembly focuses on a small part of the outsourcing market called “medium-to-high mix,” which refers to products that are highly complex–with lots of components and complicated circuit boards–and expensive. Examples of products we make are medical devices; onboard electronic systems for aircraft–like the video screens on seat backs; the electronics that go into slot machines; the electronics that drive gasoline pumps; and automated systems for high end home theater systems.

2. Your firm originally made a minority investment in 2003 and now has bought a majority of MC Assembly. Why did you go that route?

We’ve done this before. Our model of investment is flexible in that we don’t have to control the companies. When the Rossi family, which founded MC, first came to our attention a few years ago, they weren’t interested in selling the company, but rather were trying to achieve some shareholder liquidity. In 2003 we helped them do a recapitalization. Since then, the company has grown so quickly it’s stretched its resources. To take it to the next level, it needed to invest in infrastructure and also needed someone to run it in a more professionally–managed manner, rather than entrepreneurially. The founder, Charles Rossi, who is over 70, didn’t have the desire to sit through this sort of transition. We brought in George Moore, an industry veteran, as chief operating officer, who will now be chief executive, replacing Rossi, who is retiring.

3. How well can this sector support leverage, as opposed to other more traditional types of manufacturing companies?

You would want to leverage it somewhat less than a traditional niche manufacturing business because it’s fairly dynamic. It’s a growing industry where you have to keep investing back into your infrastructure. Customers come and go and you have to deal with that.

4. What are the first three actions you are taking now as full–fledged owners?

There isn’t going to be dramatic change. We’re going to put some effort into improving the company’s cost accounting. We are also deleveraging the company a bit to take advantage of more discounts offered by our suppliers of cash. We also want to bring our Mexican facility, which we opened up a couple years ago, to full capacity. It is at about 50% capacity now.

5. What was the single most attractive quality of this company?

Its customer base. It has a longstanding, strong set of customers that are in diversified markets that fit within the company’s capabilities and strategy. You need to have strong customers if you are going to do well in this industry. For instance, in 2001 the telecom sector of the electronics manufacturing industry took a big hit when the tech boom ended, and that caused a lot of restructuring for players relying only on the telecom sector. MC Assembly came through it very well because of its diversified customer base. Our future and growth are dependent on a diversified customer base that isn’t tied to a single cycle.