1Mby1M Deal Radar 2012: EE Technologies, Reno, Nev

Most people don’t care much about where the dash lighting, door lighting and seat belt sensors in their cars are manufactured. They only care that these things work properly. When people cross the street every day, they don’t worry about how the crosswalk signals were made. Again, they only care that these things work properly. Well, the people who make the primary components that control seat belt sensors and cross walk signals among other things want these things to work properly, too.

Headquartered in Reno, Nevada, EE Technologies is an electronics manufacturing services (EMS) provider that produces electronic circuit boards and electromechanical assemblies that go into final products like cars, ultrasound machines, slot machines, large construction equipment, food processing equipment, safety traffic equipment, and physics experiment classroom equipment. The company develops, manufactures, and ships its products globally through its facilities in Nevada and Mexico.

In 1995, founder and president Sonny L. Newman launched Meridian Electronics, an electronic component distribution company. He wanted to start a company that manufactured products and would mitigate the stop-and-go pattern of component distribution. He also wanted to create tangible results from his efforts and stability for his team of employees.

In 2000, Newman suspected the electronics and technology industries were headed for a downturn. Based on his day-to-day conversations with OEMs, Newman got an idea of the changes coming. In response, he and his wife, Kelli, founded EE Technologies in March 2000. The initial financing for EE Technologies came from a previous venture, and bank financing provided the rest.

Newman populated his management team with people he either knew personally or were recommended by people he trusted and respected. Chief financial officer Elizabeth Duffrin and director of operations Clay McElhany brought to EE Technologies the three key attributes that Newman sought: commitment, trustworthiness, and job knowledge.

There was some competition in Reno, but Newman was confident that his procurement abilities would set EE Technologies apart. Most local contract manufacturers supplied assembly labor only, but Newman and his team would be able to quote and manufacture full turn-key assemblies, meaning the procurement of raw materials would be provided in addition to labor.

EE Technologies was an asset purchase of another small “mom-and-pop shop” with just a few customers using consignment electronics manufacturing services.  In the early days, the strategy was to grow these existing customers by offering turnkey manufacturing. Newman met with the key customers, and communicated his background and expertise and asked for more business. Many of those customers increased the number of products they wanted EE Technologies to build. As a result, sales grew quickly and word-of-mouth attracted new customers. Some of  the customers EE Technologies serves today are Tyco Electronics, International Game Technology, Bally Technologies, Leggett & Platt, and Key Technologies.

Bringing on new customers generally takes six to 18 months, and initial new product introduction (NPI) builds are low margin or breakeven, so new customer acquisition costs are high. Because of this, EE Technologies had to quickly identify prospects who would be long-term customers and partners. Typically, profit margins in contract manufacturing are low, around 3%. New product introduction and prototype runs are thus not profit centers.  Therefore, it was critical to attract production build projects in addition to small NPI builds and prototype runs. EE Technologies’ customer acquisition strategy reflects bringing on business from prototype to production runs. Starting the Mexico manufacturing operations in 2005 greatly enhanced the company’s ability to remain competitive and provide lower-cost options for production runs.

As a tier 3 contract manufacturer, EE Technologies competes with companies under $250 million in revenue. The company sets itself apart from competitors such as Keytronic EMS and MC Assembly with location, flexibility, product quality, value pricing, and customer service.

The total addressable market for the electronics manufacturing industry is between $10 billion and $15 billion. EE Technologies’ primary target market segments are automotive and gaming, although the company can and does provide services for various other industries and will provide quotes for those companies that meet its “financial stability and product marketing standards.”

The company, which amassed $46 million in revenues in 2011, has experienced steady growth since its inception. Newman expects future growth to be more aggressive “as systems are now in place,” and he estimates that sales in 2012 will exceed $50 million with a profit margin of 3.0%.

Pricing varies from project to project and is established from build documentation and bills of materials. Materials, labor, and overhead, plus profit margin, are determined for each product.  Quantity discounts are offered, and the labor cost for the Mexico location is less than for the Nevada location.

Part of EE Technologies’ growth strategy includes expanding to other markets. In addition to its LinkedIn and Facebook pages and its participation in the online marketplace MFG.com, the company will make heavy use of education and press releases to let people know they exist. Newman estimates that EE Technologies can continue to grow if it adds one or two new multimillion-dollar customers each year and secures more of the company’s existing customers’ contract manufacturing annual spending.

Newman doesn’t have any exit plans in mind for the immediate future, and said that he would only consider offers that didn’t “undervalue the operation or dramatically change the next five- to ten-year plans of continued growth in electronics manufacturing services.”

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This segment is a part in the series : 1Mby1M Deal Radar 2012