Mainebiz

W W W. M A I N E B I Z . B I Z 17 O C T O B E R 1 9 , 2 0 2 6 F O C U S M A N U FA C T U R I N G / I N T E R N AT I O N A L T R A D E Firepower 'to grow and hire' Elmet's investment plans include $165 million across three of its six manu- facturing locations, allocating $150 million to develop a tungsten complex in Nevada, and establishing a new divi- sion to coordinate sourcing, refining and delivery activities across a diversi- fied supply chain. Elmet has also been expanding through acquisitions, most recently in Vietnam and the U.K. While the company was recently awarded a $36 million U.S. defense contract to supply high-performance alloys and precision wire for the national defense stockpile, Knoll underscores that the Defense Department is not often a direct purchaser of Elmet's sup- plies. For example, the company sells radar components for the Patriot mis- sile defense systems to Raytheon and aircraft de-icing support wire to PPG Aerospace, which then sells them to aircraft manufacturers. "We're down in the supply chain, [and] we're obviously not selling tung- sten directly to the U.S. government," he says. Nevertheless, he says that having the government as a shareholder boosts the company's profile when dealing with private suppliers. "If you're talking to a Raytheon or a Lockheed or an Apple or whoever, it's a little company in Maine they've never heard of," Knoll says. "Hopefully this will help us as we try to grow and invest and hire in Maine." Out of 60 current job openings at Elmet from entry-level production workers to skilled machinists, 20 are for roles at its factories in Lewiston and Gorham, home of the firm's Microwave Techniques subsidiary. 'Patient capital' and caveats For Elmet, having the government as an investor brings challenges as well, including potential friction with the interests of private shareholders. "e government is not running Elmet, but it now has meaningful governance, information and economic rights," Welch says. "at introduces a stakeholder whose objectives aren't exclusively financial. National security, continuity of supply, domestic capacity and resilience can legitimately mat- ter alongside Ebitda, cash flow and shareholder returns." (Ebitda, short for Earnings before Interest, Taxes, Depreciation and Amortization, is a measure of core operating profitability.) She also says the arrangement can affect strategic flexibility for future financing, partnerships, ownership and mergers and acquisitions. "Government investment can simul- taneously make an asset more strategi- cally valuable while potentially nar- rowing the universe of parties that can ultimately own it," she says. Welch also notes that govern- ment ownership shouldn't auto- matically be interpreted as preferen- tial treatment. "Maintaining separa- tion between the government's role as a shareholder and its role as a cus- tomer will be important, particularly if this model becomes more impor- tant," she says. Yang Fan, who teaches investing and behavioral economics at Colby College in Waterville, warns of a similar gap. "Private shareholders care about maximizing long-run profits and hence want to sell to the highest bid- der," he says. "Government incentives might be geared more toward national security, and hence the government might strategically prefer not to sell to certain buyers." He also says that while the govern- ment's involvement reduces financing and investment risk for Elmet, that likely comes with some costs in terms of financial and strategic flexibility. at was the case for Intel, which faced higher costs when spinning off its foundry business because of an obliga- tion to either maintain at least 51% own- ership or trigger a warrant that would have allowed the government to acquire another 5% stake in Intel. "at meant Intel's foundry busi- ness was much more costly to spin off or sell," he says. "is is both a financ- ing and strategic constraint." Lessons and regulatory oversight Compher, of First Light Works, sees two lessons for other Maine manu- facturers from Elmet's dealings with Uncle Sam, especially those offering something scarce. "Elmet got these terms because it is the only U.S.-owned, fully integrated tungsten producer and Washington had few domestic alternatives," he says. "Maine has more companies like that than people realize — in mate- rials, composites, shipbuilding and precision machining. If you make something the country can't easily get anywhere else, you have more negoti- ating power than you think." But Compher cautions that equity investments are better-suited to mature companies like Elmet, which can more easily accommodate a gov- ernment partner with a board seat and other rights. "For a younger company," he notes, "that same partner can complicate every future financing and scare off private investors. For most of them, a commit- ted purchase contract is the better deal: the government as a customer, not an owner. at keeps the company invest- able and the market competitive." With regulatory oversight of government investments in private companies still a gray area in the U.S., Compher recommends holding the government to the same stan- dard as the world's sovereign wealth funds, which made voluntary pledges of transparency, independence from politics and investing on commercial terms under the Santiago Principles adopted in 2008. "If those rules were good enough for Abu Dhabi and Singapore," Compher says, "they are good enough for us." Renee Cordes, Mainebiz deputy editor, can be reached at rcordes @ mainebiz.biz VERRILL-LAW.COM Supporting the Businesses That Make Maine Manufacturers drive innovation, create jobs, and strengthen our economy. Verrill is proud to partner with manufacturers across the region, providing strategic legal counsel to help businesses grow, adapt, and succeed. P H O T O / B R I A N F I T Z G E R A L D If you make something the country can't easily get anywhere else, you have more negotiating power than you think. — Kevin Compher First Light Works Kevin Compher

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