Small&Mid caps and their great capacity for internationalization

Iván Díez and Francisco Rodríguez d'Achille, Partners and Directors of LONVIA Capital

In the wake of the COVID-19 pandemic, we have witnessed certain relocation or de-globalization initiatives affecting different sectors to varying degrees. However, it is important to note that this phenomenon is primarily political and has had a limited impact on the operational level of companies. Various regions across the globe have introduced incentive programs to facilitate this de-globalization movement, notable examples being the EU Chip Act in our continent and the CHIPS and Science Act in the US.

Among the sectors most exposed to this trend is the technology sector, particularly the semiconductor industry. This vulnerability can be attributed to the pervasive and essential nature of electronics, as well as the supply chain disruptions experienced during the COVID-19 crisis, which underscored the importance of maintaining an operational semiconductor value chain. Additionally, the sector's inherent complexity and the anticipation of continued growth in component demand necessitate the establishment of a robust and self-sufficient ecosystem, further contributing to its exposure.

Notable companies that are thriving in this context include Soitec, which has emerged as a key player in Silicon Carbide production. These companies, positioning themselves as "pick and shovel vendors" within the value chain, possess unique expertise and technologies, face limited global competition, and thus remain resilient to de-globalization effects. In the realm of electric vehicles, we can highlight Swedish firms involved in charging station production. Likewise, investments in energy efficiency have led to the emergence of similar profiled companies such as Carel Industries, while Ashtead exemplifies the infrastructure sector.

Moreover, it is worth noting that the health sector and its innovations in medical technologies are generally impervious to the de-globalization phenomenon, as geographical origin plays a minimal role in determining their value.

In the realm of industry, relocation efforts are driving demand for automation. Governments recognize this and have included modernization and digitization of local industries as key components in their recovery plans. HMS Network and Hexagon are noteworthy examples at the forefront of addressing these needs.