MAX Automation announced that it is considering the divestment of its 100%  subsidiary MA micro group. The company stated that "interested parties“, which should mostly include strategic buyers, have received initial information and will have the opportunity to engage in due diligence in a next step. No further details have been released.

Our take: A successful divestment would be a value catalyst, revealing that the value of the "parts“ exceeds the current Enterprise Value of the MAX Automation group, in our view.

MA micro is a specialist and technology leader for customized and automated production / inspection solutions targeting above all medical applications, including for instance contact lens inspection, pen injector assembly, optical inspection of small stamped parts and cannula assembly. The company has some 200 employees across sites in the USA, Singapore and Germany, and generates the majority of its revenue in North America (36%), followed by Germany (29%). 

In 2022, MA micro had sales of c. € 64m (+3% yoy) with EBITDA of € 11.2m (17.4% margin) and EBIT of € 9.1m (14.2% margin): strong margins are seen to reflect its technological differentiation targeting demanding medical niche applications. Coupled with a capital light business model, this results in outstanding returns on capital employed of 70%+ (as per the AR 2022). 

The most recent performance has been rather volatile, which is however normal for MA micro‘s project business with large ticket sizes. In H1‘23, sales dropped by 26% yoy to € 27m while order intake rose by 39% yoy to € 20m. Importantly, H1 EBITDA improved by 7% yoy to € 7.2m, reflecting an outstanding 26.6% margin, thanks to more efficient project management. While H2 should be softer than H1, we would expect MA micro‘s EBITDA to exceed € 11m for the FY23e.

A strategic buyer should be willing to pay at least 10x EBITDA for this highly profitable and return-rich speciality business. Ignoring the subsidiary‘s € 23m net cash position, this would imply a likely purchase price of above € 110m (eNuW), which would cover roughly 50% of MAX‘s current market cap, while accounting for only 25% of the group‘s EBITDA.

-continued-

The cash inflow would transform MAX‘s net debt position (€ 55m ‘23e) into net cash (€ 55m+) and could be used to redeem the financial liabilities (€ 130m as of H1‘23), which would save annual interest expenses of c. € 10m. Importantly, even after a divestment, MAX would own hidden Mittelstand champions such as bdtronic (H1‘23: € 43m sales / € 8m EBITDA) and Vecoplan (H1‘23: € 87m sales / € 10m EBITDA), amongst other, whose combined value alone should well exceed the remaining (theoretical) € 180m EV of the group ex MA micro.

Reiterate Buy with a € 7.40 PT based on DCF.