Melles: the story of a distribution giant

25 Oct 2002

More than 30 years ago, Melles Griot started life as a distributor of other companies' products. Today it has become a big-league manufacturer itself. Phillip Hill investigates.

From Opto & Laser Europe November 2002

Walk into any optics laboratory in the world, and you're almost certain to come across a bulky catalogue from Melles Griot - the latest edition is 1 inch thick, weighs more than 2 kg and contains 51 chapters of optical products. Arguably one of the best known and most venerable companies in the photonics field, Melles Griot (MG) has come a long way in the 30 years since it was founded.

The company is named after its two founders, Dutchman Jan Melles and American Dick Griot, who set up the company together in Santa Ana, California, in 1969. Now a major supplier of a diverse range of lasers and optical equipment for the original equipment manufacturer (OEM) market, as well as the optical tables and breadboards with which it is traditionally associated, in the early days MG was essentially a catalogue-based distribution outlet.

Building up to sell "The concept was to offer a complete range of optical and opto-mechanical components for the R&D and OEM markets, promoted through a professionally written catalogue that contained exact product data and background engineering data," explained Jan Melles. "Prior to the days of the Internet, having a catalogue which could be mailed worldwide gave us the best exposure in a global market."

It didn't take long once MG had become established for it to realize the potential of the European market. In 1973 it opened its first European distribution centre in the Netherlands. "Europe was always considered an important market," said Melles. "It represented about 25% of our global market, with the US [representing] 50% and the rest mainly in Asia."

In 1979, the company decided it was time that it started making its own products, and opened its first manufacturing facility in San Marcos, California. Three years later, when it acquired a custom optical factory in Rochester, New York, it expanded into the value-added manufacturing of optical systems. Then in 1988, MG further enhanced its presence in the European market with the opening of sales offices in France, Germany, Sweden and the UK.

It was at this point that both Jan Melles and Dick Griot decided the time was right for a change. "They felt it needed a different level of investment to realize its potential," explained Blake Fennell, who has been MG's chief executive officer since June 2001. However, neither of the company's founders had any interest in taking it public. "So selling the business was the best option," recalled Melles. "Dick looked for buyers in the US and I did so in Europe."

In 1988, Barloworld Ltd acquired MG as part of its scientific holdings. The London firm is part of the South American conglomerate Barloworld, which owns companies that make everything from cement and steel tubes to paints and coatings.

Acquisition driven Fennell believes that the $3bn (€3.1bn) turnover parent firm has provided a solid foundation that has encouraged growth and development at MG. "Our financial results are now included in the Barloworld Scientific Division, of which we make up about half," he explained. Total revenue for the division in the six-month period ending 31 March 2002 was €120m.

Over the years, MG's development has been driven by a series of takeovers, about a dozen of which have taken place in the last decade. In 1989, MG acquired a manufacturing facility in Tamagawa, Japan, providing access to R&D relationships, partnerships with key Japanese customers and entry into the emerging field of opto-mechatronics. Three years later, the company bought several European manufacturing facilities specializing in vibration-isolated work-surfaces and nanopositioning technologies.

And the company's appetite for acquisition is set to continue, according to Fennell: "We view acquisitions as an important vehicle for growth in the coming years." Adding enabling technologies that will support or extend MG's core businesses to its portfolio is a key goal.

More recently, MG took over laser manufacturers Omnichrome and Liconix, positioning the company to deploy new laser technology. In addition, the acquisition of Laser Power Microlasers gave MG access to leading-edge technology in diode-pumped solid-state lasers. "Our most recent and most significant acquisitions have been focused on laser technology," confirmed Fennell.

That these acquisitions have encouraged MG to grow is evident: today, MG employs about 750 people worldwide and operates in 41 countries around the globe. Half of the company's revenue, says Fennell, now comes from the US, with 33% from Europe and the remaining 17% from Asia.

Only a small portion of this revenue is now drawn from the firm's distribution activities. "Although our roots lie in catalogue photonics components distribution, more than 80% of our worldwide revenue currently comes from products that we manufacture ourselves - mostly components and subsystems for OEM applications," said Fennell. "Our future revolves around these core businesses."

The firm's biggest product sector is semiconductor equipment, which accounts for 27% of its custom. Metrology comes in at 20%, biotechnology at 17%, and telecoms at 10%. Other photonics (a mixture of OEM and R&D applications) account for the remaining chunk of the company's business. Now that most of the products MG sells are also manufactured by the company, investment in R&D is critical.

"We have invested an increasing portion of turnover in research and development programmes," said Fennell. "This investment has grown in both percentage of turnover and absolute spend for the past three years." The company intends to continue this pattern of increasing investment, until it is eventually able to plough sums in the region of 12-14% of total turnover back into the business.

The current focus of MG's R&D programme is primarily laser and optical systems technologies, but Fennel says that nanopositioning will also be playing an important role in the company's future.

Enabling technology Fennell is confident that MG will continue to prosper: "Photonics is an enabling technology with broad and ever-increasing application areas." He predicts that the firm's progress will now depend primarily on developing its semiconductor equipment, biotechnology and metrology sectors, particularly in analytical chemistry. "We will also continue to strengthen our presence in institutional/R&D sectors, where we've arguably lost a bit of ground in recent years," he added.

Jan Melles now runs Photonics Investments, a firm providing venture capital for small photonics businesses. What changes has he seen in the optics market in the three decades since MG was founded?

"The two most distinct changes have been technology and the means of distribution," said Melles. And as far as the latter issue is concerned, he added, "There is no European market or US market any more. Because of the Internet age, the world is one large market."