Punching Out! When Should I Call an Investment Banker?

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.

Recently, we have witnessed too many PCB or PCBA shops that have closed or are under-performing, or have lost significant value over the years. Many of these shops have not invested in equipment, staff, facilities, or marketing. It can take years to fix critical issues such as customer concentration, sales and marketing, underinvestment, staff/key person risk, certifications, etc. If something happens and the business needs to be sold, or if the company is approached by a well-funded, interested and serious buyer, it is important to be properly prepared and educated about the process and valuations.

The PCB market has seen at least 12 acquisitions or mergers in the past year or so, and many of these were sponsored by well-funded private equity firms or PE-backed companies. This pace is expected to pick up in the coming months as many owners are reaching retirement age, there is still a lot of over-capacity in the industry, and buyers are looking to grow through acquisitions.

Currently, of the approximately 210 PCB manufacturers in North America, at least half are below $5 million in sales. To sell, a company needs to make it easy to be acquired.  Easy does not mean to accept a buyer’s first offer and roll over. It means to have proper financial reporting, good equipment and facility, a good staff, low customer concentration, great certifications, a realistic expectation of value, and other features that make it attractive for a buyer. Even if both parties agree on valuation and terms and are willing to do a deal, acquisitions are difficult to complete, and any obstacle or delay can put a deal in jeopardy.

In the PCBA sector, there are at least 1,000 firms in North America, so the key is how to differentiate from other sellers. We recently approached an EMS firm on behalf of a buyer, and on the surface, it seemed like a good fit. However, once we learned more about the company, it became clear that an acquisition at any price would be difficult. The firm was not growing, and while the equipment was in good shape it was old, and the facility needed a lot of improvement. There was significant customer concentration but no real sales staff or network. Even though the owner said the shop could run without him, he was spending 80 hours a week in the office. The owner was not prepared on how to answer questions about the company, such as how to grow the customer base (we often hear that “in the right hands, this company could double or triple in sales”). It was a nice business that was making a good return for the owner and allowed him a good lifestyle, but it was not a sellable business. In a sector where there are hundreds of similar businesses, it is important to make it easy to be acquired.

What is good for the preparation of the business for a sale is usually good for the business in general. Customers want to see that you have good equipment and are maintaining the facility. Good financial reporting will help the owner and managers respond quickly to issues, and help point out potential areas for improvement. Investments in staff and training will pay dividends in the future. Proper documentation can help a business get organized, and can prevent issues, fines, and lawsuits. Reducing key person risk can allow the owner to focus on what they enjoy and/or what they are good at. 

While all this preparation may seem costly and time-consuming, it is much easier than starting, growing, and running a business. The shop owner has already put in the hard work, and being prepared for a sale can produce an excellent return-on-investment. Invest a little time and give your investment banker and other advisors a call. 

Tom Kastner is the president of GP Ventures, an M&A advisory services firm focused on the tech and electronics industries. 

 

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2017

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.

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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.

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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.

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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.

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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.

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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?

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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.

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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.

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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

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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

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