Soft Magnetic Composite (SMC) components designed for electromagnetic applications are being produced based on traditional Powder Metallurgy (PM) techniques. The concept of SMC technology is based on encapsulating each individual iron particle with a thin electrically insulating surface coating and subsequently pressing them together in a three dimensional array to form a finished compact. In this manner, uniform and isotropic 3D magnetic properties are acquired that offer design freedom in creating unique and innovative application concepts. The development of internal microstructure and grain orientation of the powder particles under different processing conditions has been assessed by means of Electron Backscatter Diffraction (EBSD) technique, emphasizing the degree of mechanical deformation based on misorientation maps, as well as the subsequent recovery and recrystallization of the components. Mechanical tests done by Nanoindentation have been correlated to the EBSD analysis, in order to quantify the degree of contribution of the deformation to the magnetic properties of the SMC part.