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In this enlightening conversation with M&A specialist Tom Kastner, Nolan Johnson learns that it’s a buyer’s market—and a seller’s market too. This sets up an interesting dynamic no matter which side you might be on. What trends are in play that have led to this situation and how can you make the most of it? Tom shares valuable insights that will get you thinking and planning your own strategies.
Nolan Johnson: Tom, if PCB fabs are actively planning to expand their business in response to the current market, and if they’re looking for investment money, where is that money? Is this a good time to invest, and why?
Tom Kastner: I’m very bullish on the PC board industry and the EMS industry, but then I’m very bullish on the entire U.S. electronics industry. Coincidentally, I think it’s both a good time to sell and a good time to buy.
Johnson: Why is it both a good time to sell and a good time to buy?
Kastner: Recently, we represented a fabricator and an EMS company in their sale to a strategic buyer in the industry. For sellers, especially for companies that are doing well, it’s a good market. For companies that are not doing so well, whether they’re smaller or just not as profitable, there’s still a lot of liquidity for all types of companies. Whether they’re growing and very profitable, or maybe not growing so much and not so profitable, there’s still a lot of liquidity for both.
Now, why is it a good time to invest in the industry? I think it’s because we’re talking about advocacy: a quick increase in expectancy requests in the U.S. supply chain; increased awareness of what should be made in the U.S., according to ITAR rules, or for supply chain security purposes. Those are all great tailwinds for the industry. I certainly do not think that all the business is coming back to the U.S. That’s just not going to happen. But if a small portion of the overall market comes back, that’s a huge benefit to the industry.
Johnson: What’s your opinion on how the PCB industry in North America should be retooling to maximize this opportunity?
Kastner: The larger companies like Summit, TTM, and so on have the capital to invest in themselves and the companies that they acquire. A lot of the companies that are smaller just really have not invested. Many have, but many have not.
There’s a huge investment deficit. Many of those smaller companies that have not invested are very good acquisition targets, and some buyers are looking for that type of target. The companies that have kept up with investments are great acquisition targets for Summit and others that are looking to acquire larger PC board shops.
Johnson: Some of the larger shops—Summit, TTM—come to mind, of course. It seems like there’s some private equity activity as well.
Kastner: Yes, there is quite a bit of private equity interest in the sector. In general, the private equity firms are interested because they have an interest in re-shoring and investing in the U.S., and the trickle-down business that will come with the emphasis on investment in semiconductors and the supply chain in the U.S. The private equity guys are pretty smart cookies. They know what they’re doing. TTM is a bit of a mixed picture, but certainly FTG has done a couple of acquisitions and Summit has done several. Fralock is an assembly company that acquired both Lenthor and Career. Fralock is private equity-backed, and really, the private equity-backed companies have been doing more acquisitions in the space than the public companies.
There’s a lot happening in the EMS sector as well. But I think they’re mostly going after that trend to re-shore and shore up the semiconductor supply chain.
To read this entire conversation, which appeared in the July issue of PCB007 Magazine, click here.