Electronic Manufacturing Services
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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, flex-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