Q&A: Volex's CFO on leveraging M&A for strategic growth and operation diversification

As Group CFO, how do you balance the financial management of Volex with its strategic growth objectives?

Volex is a global business that has successfully pivoted from a turnaround story towards a buy-and-build strategy with significant organic growth from our underlying operations. We have a broad set of capabilities across five diversified markets, so an important element of my role is working with our leadership team to understand where we need to prioritise investment to maximise growth.

Our approached is underpinned by our five-year strategy, launched in June 2022, setting out our target to grow revenues to $1.2 billion by the end of FY2027, including $200 million from new acquisitions. We plan to achieve this while maintaining our operating margins in the range of 9-10% and are comfortably on track to deliver against these strategic growth objectives.

As well as securing our long-term objectives, I’m very focused on the here and now. We are a dynamic business and we encourage our people to think like entrepreneurs and to take calculated risks to secure opportunities. This requires a clear approach to managing the decision making and approval process around key areas. We make good use of critical performance indicators to manage our operations and flag up any potential issues so they can be resolved on a timely basis.

Could you explain the concept of near-shoring and its growing importance in today’s geopolitical climate?

Near-shoring is about us helping our customers reduce complexity in their supply chains, giving them confidence that the critical components we produce will be delivered on time.

The pandemic, and the supply chain challenges that followed, created a seismic shift in thinking around sourcing strategy. International manufacturing had become reliant on complicated, global, just-in-time fulfilment.With challenges over availability, businesses quickly saw the risks associated with this approach.

This is an important opportunity for us because we have a comprehensive global manufacturing footprint. We are able to support our customers when and where they need us.

How has the evolving manufacturing supply chain affected Volex’s operational strategy?

The complex products we manufacture play a crucial role in our customers’ technology. As a strategic partner to some of the world’s most innovative businesses, we understand the importance of putting the customer first.

A critical element to this has been proactively sourcing key components to ensure that we can meet our delivery commitments.

Although supply chain issues have stabilised over the past 18 months, there has been a lasting change to the way manufacturers operate, particularly in the way customers prioritise lead times and component availability.

These trends validate our long-term strategy of building on our strong near-shore capabilities, creating a key differentiator for us versus our peers, who aren’t able to offer the increased flexibility that customers are now prioritising.

In light of recent global events, how has Volex adapted its supply chain to mitigate risks associated with geopolitical uncertainties?

Recent global events have emphasised the importance of proactive supply chain planning and underlined the benefits of the strategic decisions we have taken to diversify the business over the past decade. We are fortunate to have some excellent supply chain colleagues around the world who have strong relationships with key suppliers. This definitely helps when good communication between suppliers and our manufacturing teams is critical.

Clearly, we’ve not been completely immune to the dislocation that supply chains have had to endure in recent years, but we have been able to navigate conditions better than others thanks to the inherent resilience that our diversified manufacturing base offers us.

What are some of the key factors you consider when deciding whether to near-shore part of your supply chain?

A significant shift in our business strategy in the last five years has been investment in vertical integration, where we have taken control of our supply chain and produced our own supplies. For example, we make the key components, including the specialist cable, that are used in our range of EV charging products. This enhances certainty around our supply chain.

Vertical integration also delivers cost benefits, allowing us to improve our margins and enhance our competitiveness.

Volex has been on an aggressive acquisition trail since 2018. What drives this strategy, and how do you identify potential acquisition targets?

Acquiring and integrating quality businesses is a key pillar of our strategic growth strategy.

Given the breadth of our operations, both in terms of markets and geographies, there are a lot of potential targets to consider. We are interested in quality businesses, in sectors that we understand incredibly well.  In an environment where factors outside of managements control (such as Covid-19) impacted profitability at potential targets, both positively and negatively, valuation can be complex, and we take a prudent approach here.

Our most recent acquisition, Murat Ticaret, a wiring harness company operating in 3 continents and serving customers in over 26 countries, exemplifies this approach.  We had got to know the business over the years and the owners had confidence that Volex was the right option for them in the sales process. This allowed us to enter exclusive negotiations, rather than bidding in a competitive process.

Can you talk us through integrating an acquired company into Volex’s operations and culture?

After acquiring 12 businesses in the last 6 years, we’ve become particularly adept when it comes to integrating new operations to our organisation.

Each acquisition is different of course but, in broad terms, it’s about ensuring systems and processes are standardised while establishing an environment where we can all share knowledge and understanding of everything from best practice and operational excellence through to customer relations and sales processes.

Synergies form part of the broader conversation but when we acquire businesses, we’re generally more focused on establishing cross selling opportunities than extracting costs.

Overall though, the number one thing we prioritise when it comes to integration is ensuring cultural alignment – once that is in the right place, the rest tends to follow.

How do you ensure that each acquisition aligns with Volex’s overall strategic goals?

Our typical acquisition target is a strong, well-managed business in a sector where we either already have a deep understanding or where we can see a complementary fit with our existing operations. We also look for firms that have blue-chip, long-term customers, strong reputations and a well-invested asset base.

There are other elements as well of course but, if these boxes are ticked, and providing we can align on price of course, then these are the sorts of acquisition targets that will contribute to our overall strategic goals.

What are the biggest challenges you’ve faced with acquisitive growth, and how have you overcome them?

Achieving the right balance around integration is key. Most of the businesses we have bought have been owner managed. They are generally very well run, with a strong focus on cash generation and profitability. That makes them a great fit for us.

Owner managed businesses are dynamic, entrepreneurial and flexible, all things that enable them to build deep relationships with their customers. What we don’t want to do is turn them into sluggish, inflexible businesses driven by a set of rules that work for a global organisation but not an agile operation.

In addition, you may have a change in the management team when the ownership changes or shortly afterwards. As a result, it is important to find common ground culturally and operationally.

As a CFO, I need to ensure that there are the right policies and procedures in place to manage risk, but I also want to drive an integration approach that enhances the business. We should be asking “what can we learn from their approach?” and not just “what can they learn from us?”

We don’t take a one-size fits all approach to integration, we tailor the programme. And every time we get better, enhancing the process on both sides.

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