A new phase of deliberate building: our investment in ASM Security

Since Mercurio was founded, we have been building our investment and corporate finance advisory activities in parallel. Over the past years it has become increasingly clear to us in which kinds of companies we can create real added value as owners. We are not simply looking for good companies, but for businesses backed by a functioning business model, an established market position and the right professional expertise, while a new type of ownership and business development support is needed to reach the next stage of growth.

The acquisition of a majority stake in ASM Security is one of the best examples of this investment philosophy.

ASM Security is a technology company based in Szolnok that manufactures its own proprietary emergency lighting systems. Its operations are integrated from product development and manufacturing all the way to international sales – a rare combination among Hungarian and Central and Eastern European companies alike.

Over the past more than two decades, the company has gradually built up its product portfolio, manufacturing base and export market presence. Today it ships to more than 20 countries, and its systems operate in, among others, European and Middle Eastern buildings, metro stations, hospitals and major real estate developments. ASM's solutions were also deployed in the stadiums built for the 2022 FIFA World Cup in Qatar, as well as in several major projects in Doha. The company manufactures its products in a modern, automated production environment of more than 3,000 square metres.

For us, however, an export ratio or a well-functioning manufacturing capacity alone would not be enough to justify an investment decision. What we find particularly valuable in ASM is that it has developed a business model built on its own development, its own technology and its own international sales network.

In our investments, we primarily look for Central and Eastern European companies that have a sustainable competitive advantage through their product, technology or market position. We are especially interested in companies operating in niche markets where barriers to entry are high, acquiring the necessary expertise and certifications is a lengthy process, and therefore the advantage of a well-positioned player can be sustained over the longer term.

The emergency lighting market is such a market in several respects. The sector is heavily regulated, bringing products to market requires meeting complex certification and compliance requirements, while technological progress demands continuous product development. In this environment, automated, cost-efficient Central European manufacturing can create a competitive position between Western European players operating at higher cost levels and manufacturers with lower technological standards.

The market's growth prospects also support this strategy. In Europe, the modernisation and replacement of older emergency lighting systems, and in the Middle East, new construction investments are among the main drivers of growth. Based on our own market analysis, the emergency lighting market of the United Arab Emirates alone may represent a market exceeding USD 150 million per year, while opportunities of a similar magnitude can be seen in Saudi Arabia and Qatar as well.

In ASM's case, our goal is not to rethink a working model, but to build on existing strengths.

As the new majority owner, we want to support further strengthening ASM's market position, developing its product portfolio and significantly increasing its revenue in both domestic and international markets. Following the closing of the transaction, we began working on this strategy together with ASM's management and the previous owners.

We see our role primarily where the next stage of development of an already successful mid-sized company goes beyond its previous operating model. International expansion, establishing the right financing structure, the financeability of larger investments and orders, and the further professionalisation of the organisation are all areas where Mercurio can actively support the company with its financial, transaction and business development experience.

In our experience, at many well-functioning mid-sized companies it is not the product or the market that is the primary constraint on growth. Rather, it is that above a certain size, new financing, management and business development capabilities are needed. As an investor, we want to take part in building these capabilities.

The ASM transaction is also an important milestone in Mercurio's own development.

Since 2019, alongside our own investments, we have been working on corporate finance, financing and M&A advisory projects. In the course of this, we have gradually built up the team, transaction experience and network on which we can base the next stage of our investment activity.

Over the longer term, we primarily see opportunity in companies with a typical transaction size of EUR 10–25 million, which are already sufficiently mature for a change of ownership and a more professional ownership structure, yet due to their size often still fall outside the primary focus of large international private equity funds. Through the organic growth of such companies, and where appropriate through further acquisitions, regional players can be built that may later reach a size relevant to the international investor community as well.

Accordingly, we do not regard ASM as a final destination either. The transaction is the next step of a deliberately built investment platform, and at the same time preparation for Mercurio to continue its investment activity in a more institutional, fund management structure in the coming period.

Over the past years, we have built the operational foundations for this: we gained investment experience, established the necessary professional team and developed the company-building approach we intend to follow over the longer term as well. For us, ASM Security is at once the result of this building process and the beginning of a new phase.