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

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.

For the most part, the larger shops in North America are interested in acquisitions. Most are not too interested in adding a facility, unless it would add new capabilities or help them enter a new geographic market. Most buyers are interested in filling up existing capacity by moving the acquired company’s business into the buyer’s facility.

Although it was not a focus of this survey, we believe that many PCB shop owners are interested in selling now or in the next five years. However, given that buyers want to buy, and sellers want to sell, there are relatively few deals happening in the market. We count four so far this year (HT Global/Pho-Tronics, American Standard Circuits/Camtech, Compunetics/Circuits LLC, and TTM/Anaren-Unicircuits). We know of two deals that have not been publicly announced yet, and there are at least four shops that are on the market. There have been two announced closings in 2017, ITO Circuits and Sanmina-Owego.

According to the buyers we surveyed, here are some of the reasons why more deals are not happening:

  1. Sellers’ expectations of value are higher than what buyers want to pay. Many smaller shops are kind of a "lifestyle" business. That’s a great life, but buyers don’t want to pay much for that type of business.
  2. The value of the businesses may not cover debt, net current assets, or previous investments over the years. Therefore, owners may hold on until they are ready to throw the keys.
  3. Companies under $5-10 million have not invested in equipment, facilities, training, certification, etc., so a buyer will need to invest after a closing if they are going to keep the facility in place.
  4. Companies owned by families or with multiple partners have been tough to acquire. It is difficult to replace multiple people, and the corporate culture of the buyer might be quite different.
  5. Sellers do not want their shop to close, but most buyers do not want to maintain an additional facility.
  6. Many shops under $10 million in revenue are highly dependent on the founder, but if that person retires, much of the value of the company will disappear.

We would like to add that many smaller shops are not prepared for a sale, so their numbers are not accurate, their documentation is disorganized, and their response time is slow. All these factors lead to deals dragging on or dying, and/or offers being renegotiated.

Despite the above, we feel that deals will be happening in 2018. The PCB industry will continue to consolidate, as the average age of owners continues to rise, the cost of keeping up with equipment investments continues to climb, and the mismatch between seller and buyer expectations will narrow.

Our Predictions and Trends in 2018

  1. Foreign buyers: We believe several foreign PCB shops will make acquisitions in North America, particularly in the U.S., in 2018. This will be to get a foothold in the U.S., whether for a shot at U.S. military business, or to make prototypes here for production in Asia.
  2. Slow growth: Overall the North American market will not grow much, therefore, PCB shops must continue to take market share from others, or grow through acquisitions.
  3. Brokering: More North American PCB shops will get into the import/broker business (Advanced Circuits started, so why not?).
  4. Mega-mergers: At least one or two $1 billion+ deals in Asia: We expected a few mega deals in 2017, which did not happen unless you count TTM/Anaren.
  5. Middle-mergers: In addition to the mega-deals in Asia, we should see an increased number of deals in North America as well as shop closings. By our count, there are 212 PCB manufacturers now, of which 114 are under $5 million of revenue. We expect 10−20 acquisitions or closings per year, mostly of smaller shops, but also middle-mergers (two shops both in the $10−50 million range).
  6. Positive News: The U.S. administration’s America First policy, a trend towards "reshoring," and increased defense spending may help U.S. board shops.

While the above does not paint a great picture of the industry, we have been hearing some good things about increased orders, large new projects, new investments in equipment, and even possibly some greenfield investments. The shops that are investing are doing well and are pushing into new technologies, which will continue to move the industry forward. 

Tom Kastner is the president of GP Ventures, an M&A advisory services firm focused on the tech and electronics industries. Securities transactions are conducted through StillPoint Capital, LLC, Tampa, FL member FINRA and SIPC.

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 © 2018 I-Connect007. All rights reserved.