Punching Out! Lessons From Recent PCB/PCBA Buyers

I've reached out to several of our buy-side clients as well as others who have recently made acquisitions in the PCB and PCBA sectors. Here are some of their thoughts on what went right, what went wrong, and what they would do differently next time. To avoid any misunderstandings, I have not disclosed any names, and I took out any specific details about the deals.

What Went Right?

  • Due diligence found some disputed items, but overall, the information was good
  • Good advisory team (law firm, CPA, M&A advisory, consultants; money is well-spent)
  • Good planning helped make the transaction go smoothly
  • Environmental tests (Phase 1 and 2) showed areas of concern but, in general, came up clean (no need for remediation or further testing)
  • Employee retention and merging of benefits package went well
  • Communication was open with seller and employees
  • The deal closed more or less on time

What Went Wrong?

  • Conditions changed, such as expenses, after the deal was closed
  • Customer makeup changed; the forecast was not accurate
  • Due diligence missed some items
  • IT/systems integration took longer and was more expensive than planned
  • The process was too rushed; needed more time to review data and prepare for integration
  • Had to replace certain members of the management team
  • It took longer than planned for sales to grow

What Would We Do Differently Next Time?

  • Spend more time understanding the business before making an offer
  • Make integration quicker post-closing
  • Make changes quickly in order to speed up integration
  • Allow more time for certain aspects of integration
  • Ask that seller take more responsibility for integration preparation
  • Spend more time on due diligence

All deals are different, but there are some common themes in most deals. First, preparation in advance by both seller and buyer are critical. The more that the seller prepares in advance, the easier it is to correct issues before the parties get to the due diligence stage. Financial statements should be well-organized (and hopefully audited or reviewed by an outside CPA). Corporate legal documents should be organized and updated as needed. Contracts should be checked for change-of-control provisions. Environmental tests should be updated, and all permits/documentation should be current. Many of these things should be updated every year anyway, but they are easy to let slide.

Second, expect that some things will go wrong with the process. Some issues might be deal killers, and others might be minor, but, if added up and ignored, could lead to a major blow-up. It is important to deal with issues quickly and openly as they come up.

Third, while there will be conflicting pressures to move quickly and to take more time to review information, it is critical that the buyer understands the business before going through with the transaction. It is much better to work out issues before closing than to try to do it afterward. The seller should have due diligence information ready for the buyer and produce additional information or clarifications quickly. The buyer should dedicate enough time to the project to review information quickly. If the buyer is relying on outside consultants to review information, make sure that they are available before getting into due diligence. Time does kill all deals; however, if both parties are motivated to get the deal done and work together to make it happen, it will happen.

Lastly, most sellers are first-time, last-time participants, whereas many buyers have much greater acquisition experience. Nevertheless, very few sellers take the time to get educated, prepare the company for sale, and dedicate enough time and resources to the project. The seller may have spent 20 years or more to build up the business, and it may be 90%+ of their net wealth, so it makes sense to spend a little time and resources to get prepared.

Tom Kastner is the president of GP Ventures, an M&A advisory services firm focused on the tech and electronics industries. He is a registered representative of StillPoint Capital, LLC—a Tampa, Florida member of FINRA and SIPC—and securities transactions are conducted through it. StillPoint Capital is not affiliated with GP Ventures.

Back

2019

Punching Out! Lessons From Recent PCB/PCBA Buyers

11-25-2019

I've reached out to several of our buy-side clients as well as others who have recently made acquisitions in the PCB and PCBA sectors. Here are some of their thoughts on what went right, what went wrong, and what they would do differently next time. To avoid any misunderstandings, I have not disclosed any names, and I took out any specific details about the deals.

View Story

Punching Out! Trust Is a Major Factor in M&A Transactions

11-04-2019

Trust is critical in M&A transactions. Both parties are naturally suspicious of each other, and tensions run high even in the smoothest of deals, so any small molehill can be magnified into Mt. Everest. To avoid bigger problems, Tom Kastner emphasizes the importance of establishing trust from the beginning and continuing to be trustworthy throughout the process.

View Story

Punching Out! SMTAI 2019

10-10-2019

My firm goes to a lot of trade shows—at least one each month—because it is a great way to meet business owners as well as their trusted advisors. Trade shows are also an excellent way to hear industry information that otherwise we would not hear (aka rumors).

View Story

Punching Out! What Goes Into the Confidential Memo?

09-23-2019

One of the key materials used in the business sale process is the confidential memo or book, which is essential if an owner is considering a sale of the business. Even if you are considering a sale in the future, it is good to have a basic book ready in case an unsolicited buyer comes calling.

View Story

Punching Out! Mid-2019 M&A Round-up

08-22-2019

There have been quite a few deals in North America in the PCB and EMS spaces over the past 12 months. I have attempted to track down a fair number of these deals and list them, but many are not publicized. What’s remarkable is that so many of these deals involve private equity. PE firms are certainly a great source of liquidity for owners in these sectors. PE-owned firms tend to make a lot of add-on acquisitions, so we’ll look at these companies to acquire many smaller shops in the coming years. Here are some of the most notable PCB, PCBA, and EMS deals since December 2018.

View Story

Punching Out! Why Can’t You Sell Your Business on eBay?

07-25-2019

Wouldn’t it be a lot easier if we could buy and sell companies online? Owners could avoid a lot of trouble and fees as well as get deals done quicker. Unfortunately, it’s not that easy. Here are seven reasons why a business cannot be sold online and how owners can make the sale process go more smoothly.

View Story

Punching Out! Exit Planning 101

06-26-2019

Proper planning can take away many headaches for the seller and buyer as well as increase the value of the company, help obtain better terms, and overall, make it easier to complete a transaction.

View Story

Punching Out! Delegate and You Shall Be Set Free

05-29-2019

It is good for owners/CEOs to step back a few times a year and think about what they do well, what they like to do, and what others can do better. Delegating simple tasks, like sweeping floors, is easy, but delegating sales management or quality control might be tougher. Although delegating is difficult, almost no business can grow solely on the efforts of the owner.

View Story

Punching Out! What’s Special About Your Business?

04-29-2019

To help sell your business to buyers, or to sell your products and services to customers, it is a good idea to find out what is special about your business. It is also important to know how to communicate what's special. Read on to find out how you really compare to the competition, and what concrete metrics and KPIs you can use to judge your own performance.

View Story

Punching Out! Getting to a Signed Letter of Intent

03-28-2019

The letter of intent (LOI) serves as a roadmap for the buyer’s attorney to begin drafting the purchase agreement, so it is important that there are enough details in the agreement. Any major terms that are important to the parties should be included. Here's a list of the very important items in the LOI.

View Story
Back

2018

Punching Out! Avoid Surprises During the M&A Process

11-27-2018

No one likes surprises, especially in merger and acquisitions (M&A) deals; there are enough unknown variables to start with. As the deal progresses, tensions start to rise, so any additional variables can cause a disproportionate response. Below are some ways to avoid surprises, and how to deal with them when they come up.

View Story

Punching Out! How to Avoid Key-Person Risk

09-06-2018

PCB West 2018 is next week in Santa Clara, California (September 11–13). Can you go to the show and visit a winery or two without your shop falling apart? Have you taken a vacation in the past few years? Can you afford to not do board rework on a holiday weekend, like this past Labor Day? If you answered “no” to any of these questions, you may have key-person risk.

View Story

Punching Out! Beware of Customer Concentration Risk

08-08-2018

One of the biggest risks in M&A is customer concentration risk. It is hard to avoid as a business owner; if a customer is giving you orders, you generally take them! The next thing you know, your customer has 90% of your sales and they own you. We see this a lot in both the PCB and contract manufacturing industries.

View Story

Punching Out! Dealing with Family Businesses

06-28-2018

Some families may have spent this past Father’s Day discussing family business issues, including when, how or whether to pass the baton. There are several issues to consider when dealing with a family business.

View Story

Fact or Myth: Do 80% of M&A Deals Fail?

05-09-2018

We are often asked by business owners if the commonly quoted figure is true that 80% of mergers fail to meet expectations after closing. There is a fair amount of research on large ($1 billion+), public deals that suggests that the 80% post-closing failure rate may be true.

View Story

How to Prepare for a Smooth Post-M&A Deal Transition

04-05-2018

Selling a company is an exciting process, as well as time-consuming, stressful, and complex. Both sellers and buyers are sometimes so caught up in the deal that they forget to properly plan the post-deal integration.

View Story

Cross Border Deals: What to Look for and How to Manage

02-22-2018

My firm has been approached by foreign firms several times this year and in 2017 who want to acquire PCB, PCBA, or other electronics companies in North America.

View Story

Punching Out! Top 10 M&A Deal Killers

01-25-2018

I am often asked about some of the reasons why M&A deals die. Although this is a very painful subject, hopefully through sharing these reasons we can help some deals survive the M&A process. Here are my top 10 M&A deal killers (and some of the solutions).

View Story
Back

2017

Punching Out! Survey on State of the North American PCB M&A Market

12-29-2017

Recently, my firm surveyed about 20 PCB manufacturers in North America with an estimated greater than $10 million in revenue. Quite a few replied, and we have spoken with many others throughout the year, which gives us a good view on the state of the PCB market. If I did not contact your shop recently, it is because we already talked within the last 12 months.

View Story

Punching Out!: PCB/PCBA M&A Top 10 FAQs

11-13-2017

We talk with owners a lot about the possible sale of their businesses. Here are the top 10 questions asked by PCB/PCBA shop owners about the process.

View Story

Punching Out! Case Study—Lessons on a Deal

10-19-2017

This is a story of one of our clients, a U.S. contract manufacturer that sold a few years ago. To maintain confidentiality, the names have been changed and the details slightly modified.

View Story

Punching Out! Making the Process Easy (M&A Process Engineering)

09-06-2017

In the M&A world, there are companies that make it easy (or at least easier) and those that make it difficult. By making the process easier, sellers should see better valuations and terms, and have a smoother deal process.

View Story

Punching Out! Bridging the Valuation Gap Between Buyer and Seller

06-13-2017

PCB acquisitions in the U.S. are down so far in the first five months of 2017, with only two announced deals (HT Global Circuits’ acquisition of Pho-Tronics in April; American Standard Circuits’ acquisition of Camtech in May); and one anonymous deal that I am aware of that has not been announced. This compares with 11 announced deals in 2016. There are a variety of reasons for the decline, but one reason could certainly be the valuation gap between buyer and seller.

View Story

Punching Out! How to Put a Wrench in the Rumor Mill During the Sale of a Company

05-23-2017

When selling a house, the owner’s agent puts a sign in the front yard, posts info on the Web, and invites buyers over for an open house. When selling a car, we put a sign on the windshield and take out an ad with our phone number on it. However, when selling a business, some owners do not even tell their spouses.

View Story

Punching Out! Selling a Company—Seeing it as a Triumph, Not a Defeat

04-25-2017

Somehow, there is a still a stigma that selling a company is a negative for the owner. Many people think that there must be something wrong, otherwise, they would not be selling. In reality, exiting a business should be looked at as a triumph for the owner, not a defeat.

View Story

Punching Out! 10 Ways to Increase the Value of Your PCB/PCBA Shop

03-22-2017

I have worked with a wide range of companies in the PCB, PCBA, and other tech and electronics sectors. Through the years, I have developed some ideas on how companies can improve their valuation. Some of these ideas are simple and involve little cost, other ideas are more long-term and involve more effort or investment.

View Story

Punching Out! When Should I Call an Investment Banker?

02-20-2017

The quick answer is ASAP. Even if you are not considering the sale of the company for 5−10 years, it is best to be educated and prepared. Give your advisor (or a few advisors) a call to discuss what can be done to get the company ready for a future sale. The worst time to call an i-banker or business broker is when you are forced to sell due to poor performance, health issues, pending bankruptcy, or dispute with a partner or manager.

View Story

Punching Out! Types of Company Buyers in the PCB and EMS Sectors

01-09-2017

Mergers and acquisitions in the U.S. PCB sector have been in the news recently, with at least 12 deals completed over the past year, and several more in the works. In contrast, the EMS sector has been relatively quiet, but that may change now that the presidential election is over.

View Story
Back

2016

War Stories from the Front Lines of Deal-Making

09-16-2016

Here are some war stories from my experience in working on M&A deals in the PCB, EMS, and electronics fields. The names and details have been changed to protect the innocent.

View Story

Timing: When is the Best Time to Sell?

08-18-2016

A few of the top questions we receive relate to the timing of the sale of a business. The first is, "Is now a good time?" The second one is, "How are market conditions?" These are the top FAQs.

View Story

The PCB Sector—What Buyers Look for and Recent Deals

07-14-2016

The past few months have seen a rash of PCB deals in North America, for a variety of reasons.

View Story

What the Heck is Adjusted EBITDA?

06-07-2016

If you are looking to sell or buy a business, you will most likely come across the term ‘adjusted EBITDA.’ Other common terms are adjusted cash flow, owner’s discretionary earnings, earnings after add-backs, etc. What do these terms mean, and why are they important?

View Story

The Additive Process: Tips on How to Buy a Board Shop or Assembly House

05-14-2016

One of the quickest ways to grow a business is to acquire another business. At the same time, acquiring a business can be risky, and a really bad deal may put your original business in jeopardy. Here are some tips on how to make acquisitions.

View Story

Your Baby’s Ugly, Now Get Over it (How to Work with Buyers)

04-14-2016

Here’s a scenario: An owner has gone to market and is starting to get feedback from buyers, and shockingly, not everyone appreciates the hard work and achievements that went into the business. Buyers may not understand the business, or they may be trying to position things for a low offer. In any case, it is important to know how to work with buyers.

View Story

Putting Together the Deal Team

03-21-2016

When preparing to sell, remember the old saying, “He who represents himself has a fool for a client.” While many owners might be tempted to go it alone, in my experience it pays to have a deal team to help prepare a company (and the owner) for a sale

View Story

Punching Out: How to Sell Your PCB/Assembly Shop

02-04-2016

You are thinking of selling your PCB or assembly shop. Perhaps you are contemplating retirement, you have no successors, and the thought of going to the office on Monday is driving you crazy. This column is designed to help your planning efforts. Future columns will go deeper into each subject

View Story
Copyright © 2019 I-Connect007. All rights reserved.