August 2019

Electronic Manufacturing Services

Inside:

. Developments . M&A activity . Valuation . About Clearwater International . International team and contacts

clearwaterinternational.com Executive summary

Executive summary of Clearwater Transaction the EMS and ODM International’s highlights in the industry transaction highlight global EMS sector . CapitalWorks has acquired The European EMS market grew to in CapitalWorks has agreed to acquire Libra Industries. Libra excess of €31bn in 2018 with an Libra Industries. Libra Industries, Inc. Industries, Inc. is a full-service expected annual growth of is a full-service solutions provider of solutions provider of c. 3% until 2022. Main growth drivers engineered printed circuit board engineered printed circuit include continued digitalisation, assemblies, electromechanical board assemblies, Internet of Things (IoT), electrification assemblies and electronic control electromechanical assemblies and the expansion/roll-out of solutions. and electronic control communication networks. solutions. As a leading EMS contract Increasing competition combined with manufacturer serving the medical, . BB Electronics A/S, one of market consolidation continues to aerospace & defence, and industrial Scandinavia’s leading service increase price pressure. This is markets, Libra will complement companies in the field of leading to the movement of production another CapitalWorks portfolio electronics production, has of low and medium volume/high mix company, GEMCITY Engineering and acquired Czech company electronic assembly from Western Manufacturing. GEMCITY is a contract Wendell Electronics, with 130 European countries. manufacturer providing employees and revenues in comprehensive manufacturing 2018 of €12.5m. Valuation level of EMS services for complex equipment used . PRIMEPULSE SE has in the aerospace & defence, medical, acquired ETL Elektrotechnik players worldwide packaging, and industrial markets. Lauter GmbH, a company that manufactures electronic In December 2018, the valuation level components. The company of the EMS industry decreased to a strengthens the EMS level similar to mid-2016 (c. 5x business activities of EBITDA). The level recovered in April PRIMEPULSE Group which 2019 to above 6x EBITDA. already consists of Katek Group and Steca Elektronik, In general, global small and medium- Memmingen. sized EMS companies continue to show significantly higher valuation acquired levels on average (c. EV/EBITDA ≥7x) in comparison to large EMS providers (c. EV/EBITDA 5x) and European players (c. EV/EBITDA 6x).

M&A activity in the EMS industry Undisclosed Libra Industries is a leading provider of Between mid-November 2018 and mid-June 2019, there have been integrated Electronic 15 EMS transactions recorded with Manufacturing continued strong consolidation Services, serving dynamics in the global market. OEMs with complex or technologically sophisticated manufacturing requirements

Clearwater International Electronic Manufacturing Services 2 DevelopmentsTransactions

Overview of the Based on current market dynamics, Growth trends in EMS which are characterised by high price European industry pressure and competition, EMS end-markets providers will face the draw of The European EMS sector reached a Digitalisation, IoT, the continued migrating production to lower labour market size in excess of €31.4bn in global expansion of Long-Term cost countries from Western Europe. 2018 with forecasted CAGR of more Evolution (LTE), and therefore the than 3% until 2022. Main growth The latest hourly labour rates from increased data usage, is forecast to drivers include the expansion of the China within the manufacturing sector fuel demand in EMS. Strong growth is 5G network, IoT, ageing population are now broadly comparable with expected in sectors including control and electrification of vehicles. Bulgaria and Romania, which gives & industrial, medical, automotive, and European EMS providers and OEMs communication. European market players are less incentive to manufacture in expecting the value of outsourced Industry 4.0 and IoT are driving China, unless there are other services in the electronics industry to improvements in wireless systems in reasons, e.g. economies of scale or grow in the next one to three years, home, manufacturing, office, and local market presence. due to growing demand of electronics retail segments. The applications are and the maturity of the joint approach Quantitative outlook becoming highly diverse, from AI/ VR with original equipment introduction, smart lighting & building manufacturers (OEMs) to outsource The “book-to-bill” ratio, a ratio systems, robotics & automation, design and manufacturing services. of orders received to the amount healthcare monitoring, all requiring Analysts forecast a 3-5% growth of billed for a specific period, extensive know-how. is an indicator of mid-term outsourced electronic production in The communication sector is also developments. Europe with higher growth rates in expected to grow due to the roll-out the automotive and control & In the DACH printed circuit board of 5G networks and further expansion industrial sectors. segment, Q3 2018 experienced an all of 4G in rural areas to upgrade slow The strong competition and time low, however recovered by the download/upload speed in some consolidation within the European end of Q4 2018 and increased from regions. EMS industry is set to continue. Key 0.85 to 1.06. drivers for consolidation are economies of scale, access to and expansion of know-how and end- markets. Shift of production "Book-to-bill" ratio of PCB segment in DACH and North America towards LCC Between 2000 and 2016 production 1.15 in the EMS sector increasingly 1.11 1.13 1.12 1.07 1.07 migrated from Western Europe to 1.06 1.06 1.05 1.04 1.05 CEE/MENA. However, since 2016 1.02 there has been a slowdown in the 1.00 1.00 1.03 1.06 migration of production from Western 1.03 1.01 1.03 Europe. 1.00 0.99 1.00 0.97 0.97 Newer electronic products can now 0.97 involve very complex assemblies with a mix of technologies, -rigid combinations, different 0.85 semiconductor placements and with DACH North America high reliability performance criteria. It seems that these assemblies are 4Q15 2Q16 4Q16 2Q17 4Q17 2Q18 4Q18 more likely to remain in Western Europe, either for all or most of their product life, while expertise in CEE/MENA are brought up to speed.

Source: Reed electronics, ZVEI, evertiq, Clearwater Research Note: CEE = Central and Eastern Europe; MENA = Middle East & North Africa

Clearwater International Electronic Manufacturing Services 3 M&ATransactions activity

Selected EMS transactions worldwide

Date Target Bidder Description

Angeles Equity Angeles Equity Partners along with the management of APCT, Inc., 06/2019 APCT, Inc. Partners & the US-based manufacturer of printed circuit boards, has acquired the Management Management company in a management buy-out transaction.

CapitalWorks has acquired Libra Industries, Inc., the US-based Libra Industries, 05/2019 CapitalWorks manufacturer of engineered printed circuit board assemblies and Inc. electromechanical assemblies.

Scanfil Oyj has acquired HASEC-Elektronik GmbH, a Germany-based HASEC-Elektronik 05/2019 Scanfil Oyj provider of EMS from bm-t BeteiligungsmanagementThueringen GmbH GmbH.

ebm-papst Mulfingen GmbH & Co. KG has acquired a 50% stake in Ikor Sistemas ebm-papst Mulfingen 05/2019 Ikor Sistemas Electronicos S.L., a Spain-based company engaged in Electronicos S.L. GmbH & Co. KG 50% stake design and manufacture of electronic circuits.

Insight Equity’s portfolio company, VirTex has acquired Circuit Circuit 02/2019 VirTex Enterprises Technology, a US-based EMS provider for high-reliability components, Technology LLC mainly for the aerospace and defence industry.

Wendell BB Electronics A/S has acquired Wendell Electronics, A.S, a Czech 02/2019 BB Electronics A/S Electronics, A.S Republic-based company engaged in EMS.

East West Manufacturing has acquired General Microcircuits, Inc., a General East West 01/2019 US-based EMS company offering circuit board and integrated Microcircuits, Inc. Manufacturing, LLC assemblies to various industries in diverse applications.

Compass Electronics Group, a portfolio company of Compass Group Protech Global Compass 01/2019 Equity Partners, has acquired Protech Global Solutions, a US-based Solutions, LP Electronics Group provider of EMS.

ETL Elektrotechnik Primepulse SE has acquired Germany-based ETL Elektrotechnik 01/2019 Primepulse SE Lauter GmbH Lauter GmbH, a company that manufactures electronic components.

Cerberus Capital Management, L.P. has acquired Sparton Sparton Cerberus Capital 12/2018 Corporation, a listed US-based company providing design, Corporation Management, L.P. engineering and electronics contract manufacturing services.

Streamline Summit Summit Interconnect has acquired Streamline Circuits Corp., the US- 12/2018 Circuits Corp. Interconnect based manufacturer of printed circuit boards.

Kitron, Inc. has acquired API Defense USA, Inc. from API API Defense Kitron ASA 11/2018 Technologies Corp. Kitron, Inc., the US-based company engaged in USA, Inc. (Kitron Inc.) EMS division manufacturing fully assembled electronic products.

Myotek Industries, Inc., the portfolio company of New Water Capital, 11/2018 Amptech, Inc. Myotek Industries, Inc. L.P., has acquired Amptech, Inc., the US-based manufacturer of circuit boards and other electronic assemblies.

SMTC Corporation has acquired MC Assembly Inc., the listed Canada- MC Assembly 11/2018 SMTC Corp. based provider of contract electronics manufacturing services such as Inc printed circuit board assembly and rapid prototyping.

Speedboard Note AB has acquired Speedboard Assembly Services Ltd, the UK- 11/2018 Assembly Note AB based provider of electronics manufacturing services. Services Ltd

Source: Clearwater Research, Mergermarket

Clearwater International Electronic Manufacturing Services 4 Valuation

Comparable company valuation – EMS industry

Market Share Revenue-CAGR EBITDA Margin EBIT Margin EV / Revenue EV / EBITDA EV / EBIT PE Company Net Debt EV cap Price 2016-18 2018-20 2018 2019 2020 2018 2019 2020 2018 2019 2020 2018 2019 2020 2018 2019 2020

European

TT Electronics 413 47 460 2.5 13.6% 7.7% 6.8% 11.3% 11.7% 3.9% 8.4% 8.8% 1.0x 0.9x 0.8x 14.2x 7.6x 7.1x 24.6x 10.3x 9.4x Scanfil 266 47 313 4.1 5.3% 2.8% 8.3% 8.6% 8.7% 6.7% 6.6% 6.7% 0.6x 0.5x 0.5x 6.7x 6.3x 6.1x 8.4x 8.2x 7.9x Kitron 197 72 269 1.1 11.9% 14.9% 7.9% 8.5% 9.1% 6.1% 6.1% 6.8% 1.0x 0.8x 0.8x 12.5x 9.2x 8.3x 16.3x 12.7x 11.0x Neways 163 42 205 13.5 13.5% 4.0% 5.8% 6.3% 6.4% 4.2% 4.7% 4.7% 0.4x 0.4x 0.4x 7.0x 6.1x 5.8x 9.7x 8.3x 7.9x Cicor 131 25 156 45.2 14.4% 6.3% 9.9% 11.7% 11.1% 6.1% 6.9% 7.6% 0.7x 0.7x 0.6x 7.1x 5.6x 5.6x 11.3x 9.6x 8.1x Lacroix 68 50 118 19.0 4.4% 4.7% 5.1% 6.0% 6.2% 3.2% 3.6% 4.1% 0.3x 0.2x 0.2x 5.0x 4.0x 3.7x 7.9x 6.8x 5.6x Hanza 50 34 84 1.6 17.8% 8.2% 6.2% 9.0% 9.6% 2.9% 4.1% 4.6% 0.5x 0.4x 0.4x 7.8x 4.9x 4.3x 16.5x 10.8x 9.0x

Median 13.5% 6.3% 6.8% 8.6% 9.1% 4.2% 6.1% 6.7% 0.6x 0.5x 0.5x 7.1x 6.1x 5.8x 11.3x 9.6x 8.1x Mean 11.6% 6.9% 7.1% 8.8% 9.0% 4.7% 5.8% 6.2% 0.6x 0.6x 0.5x 8.6x 6.3x 5.8x 13.5x 9.5x 8.4x

Global Large Tier

Foxconn 31,325 (6,374) 24,952 2.3 10.2% 0.8% 3.7% 3.6% 3.5% 2.6% 2.2% 2.3% 0.2x 0.2x 0.2x 4.4x 4.6x 4.6x 6.4x 7.4x 7.1x Quanta 6,833 843 7,676 1.8 7.2% 5.2% 2.1% 2.3% 2.5% 1.4% 1.5% 1.6% 0.3x 0.2x 0.2x 12.5x 10.8x 9.5x 18.6x 15.9x 14.2x Flex 4,578 1,678 6,256 8.9 4.1% (0.3%) 4.2% 5.2% 5.7% 2.2% 3.3% 3.9% 0.3x 0.3x 0.3x 6.4x 5.3x 4.8x 12.0x 8.3x 7.0x 4,329 (58) 4,271 1.7 7.6% 1.4% 2.1% 2.2% 2.5% 0.9% 1.0% 1.2% 0.1x 0.1x 0.1x 5.2x 5.0x 4.3x 12.4x 11.6x 8.6x 4,228 2,005 6,233 27.6 11.6% 7.3% 6.2% 6.4% 6.4% 2.9% 3.5% 3.6% 0.3x 0.3x 0.3x 4.8x 4.2x 4.0x 10.2x 7.7x 7.3x Compal 2,405 750 3,155 0.6 12.3% 4.3% 1.5% 1.8% 1.7% 1.0% 1.2% 1.3% 0.1x 0.1x 0.1x 7.7x 5.9x 6.0x 11.8x 8.8x 8.3x 1,901 1,295 3,196 0.7 16.1% 4.8% 2.1% 2.3% 2.3% 1.2% 1.2% 1.4% 0.1x 0.1x 0.1x 5.9x 5.3x 4.9x 10.3x 9.6x 8.2x Sanmina 1,949 213 2,162 28.2 6.1% n/a 4.5% 5.5% n/a 2.9% 4.1% n/a 0.3x 0.3x n/a 7.3x 5.3x n/a 11.3x 7.2x n/a Fabrinet 1,792 (309) 1,483 48.7 11.0% 10.9% 10.2% 11.1% n/a 8.2% 9.4% 9.5% 1.1x 1.0x 0.9x 11.0x 9.0x n/a 13.7x 10.7x 9.6x Plexus 1,517 115 1,632 51.4 7.4% 7.4% 6.2% 6.2% 6.4% 4.5% 4.5% 4.8% 0.6x 0.6x 0.5x 10.0x 9.2x 8.3x 13.7x 12.6x 11.3x

Median 8.9% 4.8% 3.9% 4.4% 3.0% 2.4% 2.8% 2.3% 0.3x 0.3x 0.2x 6.8x 5.3x 4.8x 11.9x 9.2x 8.3x Mean 9.4% 4.7% 4.3% 4.7% 3.9% 2.8% 3.2% 3.3% 0.3x 0.3x 0.3x 7.5x 6.5x 5.8x 12.0x 10.0x 9.1x

Global Small and Mid T ier

CTS Corp. 930 (26) 904 28.3 8.9% 3.0% 18.8% 19.7% 20.1% 14.0% 15.1% 18.4% 2.1x 2.1x 2.0x 11.4x 10.7x 6.4x 15.3x 14.0x 11.0x Benchmark 923 (153) 769 23.9 5.1% (5.4%) 4.6% n/a n/a 2.7% 2.6% 3.2% 0.3x 0.4x 0.4x 7.3x n/a n/a 12.2x 14.2x 11.8x 806 310 1,116 6.3 4.7% (5.9%) 3.8% 4.5% 5.1% 2.5% 2.5% 3.2% 0.2x 0.2x 0.2x 4.9x 4.7x 4.1x 7.4x 8.4x 6.7x Hana 688 (212) 476 0.9 4.4% (0.7%) 15.1% 12.5% 14.1% 10.2% 7.4% 7.9% 0.7x 0.8x 0.7x 4.8x 6.2x 5.2x 7.1x 10.5x 9.3x Ducommun 442 222 664 38.4 6.9% 7.0% 10.3% 12.1% 11.9% 6.2% 7.3% 7.5% 1.2x 1.1x 1.0x 11.5x 9.0x 8.6x 18.9x 14.9x 13.7x VS Industry 475 27 503 0.3 23.3% 5.4% 7.1% 7.5% 8.2% 5.0% 5.3% 5.8% 0.6x 0.6x 0.5x 8.2x 7.6x 6.3x 11.5x 10.9x 8.9x SVI 253 (39) 214 0.1 18.8% 13.4% 7.8% 6.4% 6.5% 5.2% 3.9% 4.2% 0.5x 0.4x 0.4x 6.0x 6.4x 5.6x 9.1x 10.5x 8.7x

Median 6.9% 3.0% 7.8% 9.8% 10.1% 5.2% 5.3% 5.8% 0.6x 0.6x 0.5x 7.3x 7.0x 6.0x 11.5x 10.9x 9.3x Mean 10.3% 2.4% 9.6% 10.5% 11.0% 6.6% 6.3% 7.2% 0.8x 0.8x 0.8x 7.7x 7.4x 6.1x 11.6x 11.9x 10.0x

EV/EBITDA by Size and Geography EV/EBITDA Development Median EV/EBITDA Median EV/EBITDA

Chart Title 9.0x

Chart Title

7.0x 8.0x 6.1x 6.1x 5.8x 6.0x 5.3x 5.6x 4.8x 7.0x

6.0x

5.0x

4.0x 2019 2020 3.0x European Global Large Tier Global Small and Mid Tier Total Jul 14 Jan 15 Jul 15 Jan 16 Jul 16 Jan 17 Jul 17 Jan 18 Jul 18 Jan 19 Jul 19

Size by market cap: Large-tier > €1.4bn Source: S&P Capital IQ 26th July 2019, 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 200+ each year 1,563 289 Employees

Offices 15 worldwide

10 Industry sectors

Automotive Business services Consumer Energy & utilities Food & beverage 268 211 236 45 61 deals deals deals deals deals

Industrials Healthcare Real estate TMT Financial services & chemicals 38 94 392 53 165 deals deals deals deals deals

Coordinating as a single team, our 200+ experienced professionals have been responsible for the successful completion of more than 1,500 deals worth in excess of €74bn. The Enterprise Value of our successfully completed transaction is on average close to €100m. Working alongside directors, shareholders and investors we advise on all aspects of corporate finance from mergers and acquisitions (M&A), 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 key industrials team

Markus Otto Barry Chen Partner, Germany Partner, China Tel: +49 69 58302 77 24 Tel: + 86 21 6341 0699 x 881 Email: [email protected] Email: [email protected]

Carsten Rydahl Thomas Gaucher Partner, Denmark Partner, France Tel: +45 27 62 03 73 Tel: +33 153 890 505 Email: [email protected] Email: [email protected]

John Sheridan Rui Miranda Partner, Ireland Partner, Portugal Tel: +353 1 517 58 41 Tel: +351 918 766 799 Email: [email protected] Email: [email protected]

Francisco Gómez Jon Hustler Partner, Spain Partner, UK Tel: +34 699 446 314 Tel: +44 7788 144 470 Email: [email protected] Email: [email protected]

clearwaterinternational.com China - Denmark - France - Germany - Ireland - Portugal - Spain - UK - US