Mid-2019 PCB and EMS M&A Round-up

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. For example, our firm has completed five deals in 15 months in these sectors, but only a few of these have been publicly announced for competitive or strategic reasons.

Here are some of the notable PCB deals since December 2018:

• Summit (HCI) acquired Streamline (December 2018)
• TTM sells ViaSource to Linkage (PCB distribution sector, March 2019)
• TTM acquired certain PCB assets of i3 Electronics (June 2019)
• Angeles Equity Partners acquired APCT from Saugatuck Capital (June 2019)
• FTG acquired Colonial Circuits (July 2019)

Here are some notable PCBA/EMS deals since early this year:

• Compass Electronics (Compass Equity) acquired Pro-Tech Global (January 2019)
• Kitron acquired API’s Defense EMS Group (February 2019)
• Cerberus Capital took Sparton Corporation private (March 2019)
• Virtex (Insight Equity) acquired Circuit Technology (March 2019)
• Gowanda acquired Rem-tronics (April 2019)
• Monomoy Capital (PE) acquired Kauffman Engineering (cables with some EMS, May 2019)
• CSI Electronics acquired by an undisclosed executive (May 2019)
• CapitalWorks (PE) acquired Libra Industries (May 2019)
• Zentech acquired by PE firm Blackbern from New Spring Capital (May 2019)
• SlingShot Assembly acquired Jade Electronics (June 2019)
• Lyndsey Goldberg (PE Firm) announced agreement to acquire Creation Electronics (July 2019)
• Volex (UK) acquired Servatron (July 2019)

What’s remarkable is that so many of these deals (nine) 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. A couple of the above deals (APCT and Zentech) involved the sale from one PE firm to another. Many of the other deals were completed as part of a growth strategy and/or to enable the owner’s retirement.

One of the reasons why acquisitions will continue in these sectors is consolidation. According to our records, there are 201 PCB companies and 676 EMS/PCBA companies in the U.S. and Canada. Of the 201 PCB shops, about 130 have $5 million in revenue or less. About 30 shops have more than $20 million in revenue. Many of the smaller shops are true survivors, but they will continue to be swallowed up by the larger shops as time goes on. By the way, we count something like 30 PCB distributors in North America, many of which used to produce bare boards. There are also at least 1,000 cable assembly/wire harness companies.

Another major reason why acquisitions will continue in these sectors is the age of the owners, a lot of whom are near retirement. Many owners are handing over the steering wheel to family members or younger managers, but most will look to exit via a sale.

We have talked with a wide range of buyers in these industries who continue to be attracted due to the relatively strong U.S. economy, favorable military budgets and the recent lack of sequestration, the fragmented market and number of acquisition targets, and the strength of other market sectors, such as medical, prototypes, high-end industrial, etc. Many buyers see an opportunity in helping shops bulk up, invest more in technology, and become more efficient through professional business practices.

Some of the major headwinds that buyers face are the lack of long-range visibility into the economy and the trade conflict with China. Normally, we would probably see more foreign buyers, but many buyers are concerned about tariffs as well as potential U.S. government blockage of any deals. Mainland Chinese companies, in particular, are wary about making acquisitions in the U.S., especially if the seller has any military business.

I’ll be at PCB West in September and will probably hear about more completed and pending deals; hopefully, our firm will be closing a few more by the end of the year. As always, if you are considering a sale, try to be prepared in case a great buyer comes in the door with a suitcase full of cash (or even if they just give you a call). Once you have a good deal on the hook, you don’t want to keep them waiting or shock them with any surprises.

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.