NovemberNovember / Q4 / 2018

Electronic Manufacturing Services

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clearwaterinternational.com ExecutiveTransactions summary

Transaction highlight Clearwater International Germany advises Schouw & Co. on the cross-border acquisition of CCS Group by its portfolio company GPV. Clearwater International Germany has advised Danish industrial conglomerate Schouw & Co., on the acquisition of Switzerland-based CCS Group by its portfolio company GPV. A portfolio company of The deal creates a major European electronics group with over 3,700 employees, production facilities in Asia, Europe and the Americas and combined revenue of more than €325m. GPV and CCS have both successfully served the HMLV (High-Mix/Low-Volume) Acquired segment of the Electronics Manufacturing Services (EMS) market. Both GPV and CCS provide electronics sub-assembly solutions and finished products (box- build) to their customers in high and low volume series with growing demand for this type of electronics supplier. The acquisition allows GPV to access new customers, industries and end-markets. Buy side €110m

Executive summary of large EMS providers (approx. EV/EBITDA 6x), mainly due to highly the EMS and ODM specialised focus of small and medium-sized EMS players. CCS is a specialist in industry electronics, cable The global EMS and ODM market is M&A activity in the harness manufacturing forecasted to reach a size above EMS industry €500bn in 2018 with expected growth and system integration. rates of approx. 6% in the next years In 2018, there were 17 EMS mainly driven by increased demand transactions recorded up to the end for technology across different of October 2018 an increase to last sectors including automotive and year’s period. Transactions are industrials (IoT and AI). mainly driven by consolidation and acquisitions of trade buyers. In terms With the positive growth prospects, of geography, the majority of there are a number of challenges the transaction were cross-border EMS industry currently faces, acquisitions. particularly supply bottlenecks of crucial components and the need for Denmark’s largest EMS company a sustainable and strong market GPV, which is owned by Danish position in an industry with ongoing industrial conglomerate Schouw consolidation and high level of & Co., has agreed to acquire competition. Switzerland-based EMS company CCS Group. The transaction will lift Valuation level of EMS GPV’s revenue to more than players worldwide €325m. Clearwater International Towards mid of November 2018 the exclusively advised GPV valuation level of the EMS industry International and its shareholder, decreased approximately to the levels Schouw & Co, on this landmark of beginning of 2018. cross-border acquisition of the Based on an average analysis, small Switzerland-based CCS Group. The and medium-sized EMS companies acquisition further drives are remaining to show significantly consolidation in the industry and higher valuation levels (approx. creates one of the largest EMS EV/EBITDA 9x) in comparison to players in Europe.

Clearwater International Electronic Manufacturing Services 2 DevelopmentsTransactions

Summary and overview In the wake of the shortage of EMS in the automotive components, another factor is of the global EMS and expected to shape the EMS industry: sector and other non- ODM industry Further digitalisation of the supply technology sectors chain between the components The global EMS and ODM sector is manufacturers, distributor, EMS While growth of the EMS sector expected to maintain a growth of 6% provider and the OEMs by in the past years was mainly driven reaching a market size of more than consolidation between distributors by the technology sector, non- €500bn. Main market growth and EMS providers, in order to technology sectors including the impulses are digitalisation, innovation improve the transparency of the real automotive, industrial and medical in electronics and further penetration demand for components. Hence, sectors are expected to offer more of electronics in non-technology components manufacturers could attractive growth opportunities for sectors. adjust efficiently the production EMS players with an expected growth Additionally, the outsourcing trend according to real demand. of approx. 8%. The rise of continues. OEMs are increasingly autonomous driving fuels the growth moving production, design and of EMS in the e-mobility sector. development processes to EMS Quantitative outlook Nowadays cars consist of numerous companies. Vertical integration is electronic components, such as 100- The “book-to-bill” ratio, a ratio assumed to be a key to success in 300 micro processors, more than 50 of orders received to the amount the EMS industry. The services often complex control units and 5-20m lines billed for a specific period, include all steps along the value of software code with an increasing is an indicator of mid-term chain from product development to requirement for complex design of developments. after-sales or re-design and lifecycle electronics in highly specialised services. In the DACH printed circuit board application areas. segment, the ratio decreased from With more than 2,000 companies the 1.06, in Q4 of 2017 to 0.96 by the market is still highly fragmented, but end of Q2 2018. with a continued consolidation trend (see M&A Activity). Key drivers for consolidation are economies of scale, access to know-how and end-markets as well as expanding the customer base. "Book-to-bill" ratio of PCB segment in DACH

Recent challenges and 1.15 market drivers of the 1.13 1.11 1.12 EMS and ODM industry 1.09 Due to drastic increase in demand for 1.07 1.06 1.06 passive components in the 1.05 automotive, IoT, and industrial 1.03 1.02 1.03 1.07 1.03 1.00 sectors, in 2018 the EMS sector 1.00 1.04 experienced a severe shortage in the 1.03 1.01 procurement of passive components 1.00 1.00 (resistors, capacitors). Especially the 0.99 0.97 0.97 sourcing of ceramic-based 0.96 R-chips (resistors) as well as the MLCCs (Multi-Layer-Ceramicchip- 0.92 DACH North America Capacitor) can be considered as one of the greatest challenges for EMS companies in 2018. The shortage is 2Q15 4Q15 2Q16 4Q16 2Q17 4Q17 2Q18 expected to continue until the beginning of 2020, although analyst’s opinions vary.

Source: ZVEI, evertiq, Clearwater Research

Clearwater International Electronic Manufacturing Services 3 M&ATransactions activity

Selected EMS transactions worldwide

Date Target Bidder Description

GPV International, a subsidiary of the listed Schouw & Co and a provider of EMS services, has agreed to acquire the Switzerland- 10/2018 CCS Group GPV International A/S based CCS Group. With the acquisition GPV International forms one of the major European players

DBAG along with management of SERO acquired the company in 10/2018 SERO DBAG a management buyout transaction, from the Armin Schroder family, for an undisclosed consideration.

Johnson & Johnson acquired 14 sites from Johnson & Johnson Medical Devices 09/2018 Medical Devices Jabil, Inc. Companies, as part of a strategic collaboration Companies

Universal Scientific Industrial has agreed to acquire a 60% stake in Chung Hong Universal Scientific 08/2018 Chung Hong Electronics, the Poland-based motherboard and adapter Electronics Poland Industrial card manufacturer, from ChungHong Electronics, for approx. €9m

Lonsdale Capital Partners has acquired an undisclosed majority stake Elite Electronics Lonsdale Capital 07/2018 in Elite Electronic Systems Ltd., a UK-based provider of electronic Systems Ltd. Partners Lonsdale Capital Partners manufacturing services

Mendota acquired Debron Industrial Electronics, an US-based Debron Industrial 07/2018 Mendota Group provider of value-added electronics manufacturing to the industrial, Electronics automotive, aerospace and energy end-markets

exceet S&T AG acquired the German operations, exceet Electronics GmbH, 06/2018 S&T AG electronics GmbH from Exceet Group S.E. for a deal value of €30m

Global Equipment Kimball Electronics acquired Global Equipment Services and 05/2018 Services and Kimball Electronics Inc. Manufacturing, an US-based provider of volume manufacturing and Manufacturing services for approximately €50m

Primepulse acquired Katek, a German-based provider of electronics 05/2018 Katek GmbH Primepulse SE manufacturing services

Elemaster acquired GDM, a Belgium-based manufacturer and GDM Electronics Elemaster SpA 04/2018 distributor of printed circuit boards and electronic manufacturing NV Tecnologie Elettroniche services

Suzhou Dongshan Precision Manufacturing acquired , a PCB Suzhou Dongshan 03/2018 Flex Ltd. manufacturing business of a Singapore-based EMS provider, for a Precision Manufacturing total consideration of €236m

Celestica acquired Atrenne, a US-based designer and manufacturer of Atrenne Integrated . 02/2018 Inc. electromechanical solutions for military and commercial aerospace Solutions, Inc. applications, for a total consideration of €112m

Compass Group Equity Partners acquired Logic PD, a US-based Compass Group Equity 02/2018 Logic PD designer and manufacturer of electromechanical solutions for military Partners and commercial aerospace applications

TT Electronics acquired Stadium, a UK-based provider of electronic 02/2018 Stadium Group Plc TT Electronics Plc design and build solutions, for a total consideration of €57m

APCT acquired Cartel, a US-based manufacturer and supplier of 01/2018 Cartel Electronics APCT Holdings printed circuit boards (PCB)

Cerberus Capital Cerberus acquired Isola, a US-based manufacturer of base materials 01/2018 Isola Group Management used in the manufacture of advanced multilayer printed circuit boards

Enertec Systems Coolisys acquired Enertec, a Israel-based manufacturer of specialised 01/2018 Coolisys Technologies Ltd. electronic systems for the military, for a total consideration of €8m

Source: CWI, Mergermarket

Clearwater International Electronic Manufacturing Services 4 Valuation

Comparable company valuation – EMS industry (categorised by market cap)

Company Market cap Net Debt EV Share Revenue-CAGR EBITDA Margin EBIT Margin EV / Revenue EV / EBITDA EV / EBIT Price 2014-16 2016-18 2017 2018 2019 2017 2018 2019 2017 2018 2019 2017 2018 2019 2017 2018 2019

Large Tier EMS Provider

Hon Hai 29,146.0 0.0 29,146.0 2.1 1.1% 8.2% 3.7% 3.4% 3.9% 2.4% 2.2% 2.7% 0.2x 0.2x 0.2x 5.9x 5.9x 5.1x 9.0x 9.1x 7.5x Quanta 5,473.2 (87.4) 5,385.8 1.4 (1.2%) 5.8% 2.4% 2.1% 2.4% 1.7% 1.4% 1.7% 0.2x 0.2x 0.2x 7.7x 8.9x 7.4x 10.7x 13.2x 10.1x 3,799.9 (154.6) 3,645.3 1.5 4.3% 6.4% 2.7% 2.3% 2.8% 1.6% 1.1% 1.5%0.1x0.1x0.1x4.0x4.3x3.4x6.7x9.1x6.2x Flextronics 3,644.2 1,371.2 5,015.4 6.9 (2.8%) 4.5% 4.6% 4.8% n/a 2.3% 2.9% n/a 0.2x 0.2x n/a 5.0x 4.5x n/a 9.7x 7.3x n/a Jabil 3,541.6 1,117.2 4,658.7 21.9 4.1% 11.0% 6.7% 6.3% n/a 2.9% 2.9% n/a 0.3x 0.2x n/a 3.9x 3.6x n/a 9.1x 7.8x n/a Compal 2,168.5 1,206.4 3,375.0 0.5 (3.2%) 11.9% 1.6% 1.5% 1.8% 1.0% 1.0% 1.2% 0.1x 0.1x 0.1x 8.2x 8.2x 6.6x 12.8x 12.1x 9.6x Plexus 1,624.1 (96.3) 1,527.9 51.0 1.4% 7.6% 6.8% 6.3% n/a 5.0% 4.7% n/a 0.7x 0.6x n/a 9.8x 9.2x n/a 13.2x 12.5x n/a Fabrinet 1,620.5 (255.3) 1,365.1 44.0 18.2% 10.1% 9.3% 10.2% n/a 7.4% 8.1% n/a 1.1x 1.1x n/a 11.9x 10.4x n/a 14.9x 13.1x n/a Sanmina 1,512.1 166.7 1,678.8 22.2 1.7% 4.8% 4.9% 4.5% n/a 3.2% 2.8% n/a 0.3x 0.3x n/a 5.6x 5.9x n/a 8.6x 9.3x n/a 1,444.4 1,791.4 3,235.9 0.5 3.7% 16.5% 1.6% 2.0% 2.2% 0.7% 1.2% 1.3%0.1x0.1x0.1x8.3x6.2x5.4x19.1x10.8x8.8x

Median 1.5% 7.9% 4.1% 3.9% 2.4% 2.4% 2.5% 1.5% 0.2x 0.2x 0.1x 6.8x 6.0x 5.4x 10.2x 10.0x 8.8x Mean 2.7% 8.7% 4.4% 4.3% 2.6% 2.8% 2.8% 1.7% 0.3x 0.3x 0.1x 7.0x 6.7x 5.6x 11.4x 10.4x 8.4x

Medium Tier EMS Provider

Celestica 1,219.6 (40.8) 1,178.8 8.9 2.2% 5.1% 4.1% 4.4% 5.0% 2.9% 3.2% 3.8%0.2x0.2x0.2x5.3x4.6x4.1x7.5x6.2x5.4x Benchmark 907.9 (284.9) 623.0 20.8 (6.2%) 4.9% 5.4% n/a n/a 3.5% 3.1% 3.5% 0.3x 0.3x 0.3x 5.2x n/a n/a 8.1x 9.0x 7.5x CTS Corp. 802.7 (47.6) 755.1 24.3 (0.6%) 8.8% 15.2% 19.0% 20.0% 10.3% 14.6% 15.8% 2.0x 1.8x 1.7x 13.3x 9.6x 8.7x 19.5x 12.5x 11.1x Hana 718.9 (247.5) 471.4 0.9 (1.1%) 2.9% 15.4% 14.5% 14.8% 10.5% 8.4% 9.3% 0.8x0.8x0.7x5.2x5.5x5.0x7.7x9.5x8.0x VS Industry 601.2 48.6 649.8 0.3 13.4% 28.1% 8.5% 7.5% n/a 6.4% 5.6% n/a 0.8x 0.7x n/a 9.9x 9.5x n/a 13.3x 12.7x n/a

Median (0.6%) 5.1% 8.5% 11.0% 14.8% 6.4% 5.6% 6.6% 0.8x 0.7x 0.5x 5.3x 7.5x 5.0x8.1x9.5x7.8x Mean 1.6% 10.0% 9.7% 11.3% 13.3% 6.7% 7.0% 8.1% 0.8x 0.8x 0.7x 7.8x 7.3x 6.0x 11.2x 10.0x 8.0x

Small Tier EMS Provider

Ducommun 423.7 200.1 623.8 37.1 (9.5%) 6.4% 8.4% 10.3% 11.7% 4.3% 4.1% 7.1% 1.3x 1.1x 1.1x 15.0x 11.0x 9.4x 29.1x 27.3x 15.6x TT Electronics 383.6 47.6 431.1 2.5 (14.1%) 12.7% 8.6% 11.0% 11.6% 5.5% 7.8% 8.4% 1.0x 0.9x 0.8x 12.0x 8.0x 6.8x 18.8x 11.3x 9.4x SVI 326.4 (37.7) 288.7 0.2 9.9% 16.8% 7.0% 7.2% 7.6% 4.6% 4.8% 4.8% 0.8x 0.7x 0.6x 12.1x 9.9x 7.8x 18.4x 14.7x 12.2x Neways 129.2 38.8 168.0 11.3 8.4% 11.3% 5.2% 6.2% 6.6% 3.3% 4.4% 4.8% 0.4x 0.3x 0.3x 7.4x 5.6x 5.0x 11.6x 7.9x 6.8x

Median (0.5%) 12.0% 7.7% 8.7% 9.6% 4.5% 4.6% 5.9% 0.9x 0.8x 0.7x 12.1x 8.9x 7.3x 18.6x 13.0x 10.8x Mean (1.3%) 11.8% 7.3% 8.7% 9.4% 4.4% 5.3% 6.3% 0.9x 0.8x 0.7x 11.6x 8.6x 7.2x 19.5x 15.3x 11.0x

EV/EBITDA by Size EV/EBITDA Development Median EV/EBITDA Median EV/EBITDA

8.9x 9,0x

7.5x 7.1x 7.3x 8,0x 6.0x 6.0x 5.4x 7,0x 5.0x 6,0x

5,0x

4,0x

2018 2019 3,0x Large-tier Medium-tier Small-tier Total Nov 2013 Nov 2014 Nov 2015 Nov 2016 Nov 2017 Nov 2018

Size by market cap: Large-tier > €1.4bn Source: S&P Capital IQ 15th November 2018, Clearwater Research Medium-tier €500m - €1.4bn Small-tier < €500m

Clearwater International Electronic Manufacturing Services 5 AboutTransactions Clearwater

Facts and figures

over over 55% 100 Total transactions of deals involve Debt advisory deals completed completed private equity deals 250 each year 1488 266 Employees

Offices 15 worldwide

10 Industry sectors

Automotive Business services Consumer Energy & utilities Food & beverage 256 201 227 44 60 deals deals deals deals deals

Industrials Healthcare Real estate TMT Financial services & chemicals 35 84 376 50 155 deals deals deals deals deals

Coordinating as a single team, our 250 experienced professionals have been responsible for the successful completion of almost 1,500 deals worth in excess of €70bn; in the last ten years over half of these have had transaction values between €20m and €200m. Working alongside directors, shareholders and investors we advise on all aspects of corporate finance from mergers and acquisitions (M&A) and company sales through to management buy-outs (MBOs) and fundraising transactions. Our independence from any larger financial institution or consulting firm ensures that we can give truly objective advice, guiding clients through the challenges they face. All projects are partner-led, offering high levels of personal service, and laying the groundwork for lasting relationships. Many of our clients return to us for advice on multiple occasions. With 15 offices around the world and deals completed in 31 countries, our team makes us a natural choice for transactions requiring knowledge of, and access to global markets.

Clearwater International Electronic Manufacturing Services 6 Our international industrials team

Markus Otto Philippe Guezenec Partner, Germany Partner, France Tel: +49 69 58302 77 24 Tel: 33 1 53 89 0504 Email: [email protected] Email: [email protected]

Carsten Rydahl Jon Hustler Partner, Denmark Partner, UK Tel: +45 27 62 03 73 Tel: +44 7788 144 470 Email: [email protected] Email: [email protected]

John Sheridan Barry Chen Partner, Ireland Partner, China Tel: +353 1 517 58 41 Tel: + 86 21 6341 0699 x 881 Email: [email protected] Email: [email protected]

Francisco Gómez Rui Miranda Partner, Spain Partner, Portugal Tel: +34 699 446 314 Tel: +351 918 766 799 Email: [email protected] Email: [email protected]

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