Last month, IPC came out with very positive statistics about the North American PCB market, including sales growth, a healthy book-to-bill ratio, and other indicators. Overall, the U.S. economy is strong, and manufacturing has seen a resurgence over the past decade. Still, the overall trend for investors and small company buyers for 20 years has been in asset-light, tech-enabled services businesses, such as Uber, Amazon, Airbnb, etc. Given that background, why should someone buy or invest in a North American manufacturing business such as a PCB or PCBA company?
Sectors of the North American PCB/PCBA markets that remain strong are military (ITAR-related), aerospace, medical, high-end industrial, low-volume/high-mix, prototypes/quickturns, and others. For sectors that are focused more on high volume and/or low prices, opportunities include nearshoring to Mexico or importing from Asia. Many PCB shops are supplementing their sales with imported boards, and many PCBA shops have established plants in Mexico and Asia or have marketing agreements with shops in those countries. A fair number of PCB shops are also getting into the assembly business, either in-house or through local third parties.
Various factors are forcing more OEMs to source more production in North America, including IP protection, logistics, communications, speed, politics, environmental, and social issues. The electronic content of our cars, homes, businesses, and personal items will continue to increase, as well as the need for more density, speed, weight efficiency, quality, and durability.
Private equity money is coming into both the PCB and PCBA industries. These investors see the opportunity to focus on higher-margin domestic production that is not in direct competition with overseas sources, as well as to make acquisitions in a fragmented market.
Speaking of acquisitions and fragmentation of the industry in North America, according to our database, there are about 200 shops in the PCB sector and 700 in the PCBA sector (plus wire harness and other assembly and contract manufacturing). Many of these shops are owned by founders who are ready to retire and/or are underperforming for a variety of reasons.
The industry is recovering from the offshore shock post-2000 and is becoming more modern and efficient. Customers are demanding more technology and quality from their suppliers, which is forcing manufacturers to invest in equipment. The technology, quality, and efficiency gap between state-of-the-art companies and “mom and pop” shops is increasing. Interest rates on equipment are low, so the cost of CapEx is relatively low. There is an opportunity for aggressive and well-financed companies in the industry to invest in the future as well as acquire shops that are underperforming and/or have fallen behind.
The next recession will be tough, but it will be an opportunity to acquire troubled or underperforming companies. Companies that can keep their powder dry and that are ready to do deals will be set up to make strategic acquisitions during the next downturn.
Buying any company is an exciting yet difficult decision, and any industry has competition, cost pressures, regulations, and a whole set of challenges. Both the PCB and PCBA sectors present unique opportunities to invest in the future of North American manufacturing and technology.
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.