At long last, the hunter became the hunted.
TTM Technologies in September announced its pending acquisition of Viasystems. The deal, expected to close in early 2015, will vault TTM to second place among the world’s largest PCB fabricators.
No matter how the deal turns out for TTM, Viasystems will remain one of the most talked about companies in industry history, held in awe for its audacity and blamed on multiple continents for nearly single-handedly devastating local supply chains.
For the entirety of its 18 years, Viasystems was worth 10 times its revenue in industry controversy and chatter. It sprung on the scene in fall 1996, the brainchild of New York investment firm Hicks, Muse, which in quick order bought up AT&T’s board shop in Virginia, Circo Craft, Kalex, Forward Group, ISL, Mommers and Zinocelere, plus several EMS and peripheral businesses. They were the New York Yankees of the PCB world, minus all the on-the-field success.
Then came the Tech Recession of 2001, and Viasystems’ debt ballooned to over $1 billion. Two Chapter 11 restructurings and countless lawsuits later, the company stabilized and managed to spend the better part of the rest of the decade simply managing the business.
In 2010 the veil was lifted. Viasystems resumed its buying ways, snatching up Merix and then, two years later acquiring DDi (which in turn had gobbled up Coretec). Yet consolidation didn’t bring happiness. Over the years Viasystems found it nearly impossible to turn a consistent profit. Debt, a persistent problem dating to its Hicks, Muse days, now sits at $561 million.
I would expect TTM will sell off Viasystems’ wire harness operations, which is small ($174.6 million in 2013) relative to the rest of the business and has shown operating losses in five of the past seven quarters. Viasystems has already consolidated its China manufacturing base, so I would not expect much change there. TTM is running at 75% capacity in China but only 60% in North America. TTM has seven sites in North America and Viasystems has nine, including a combined three in the Silicon Valley and two in Orange County. Perhaps they will seek to consolidate here in order to boost rates.
More concerning is the further consolidation of the US Department of Defense supply chain. TTM is known to be the largest supplier of PCBs to the DoD. The combined defense and aerospace sales of TTM-Viasystems totaled more than $320 million in 2013. In an era where the Pentagon can succeed in getting Chinese OEMs such as Huawei and ZTE blacklisted from government contracts, it is a bit jarring to know that the US is doubling down on a single supplier whose two largest direct shareholders are Chinese citizens. Industry-watchers are already asking whether Defense Supply Center, Columbus (DSCC), the Defense Logistics Agency’s qualification arm for PCBs, has the staff in place to handle adding new fabricators to its QML. If TTM were to close Mil-approved shops, it would further constrict the chain.
Viasystems changed the way the world viewed the industry. It forced Wall Street to take notice. It laid waste to the regional landscape, ultimately closing millions of sq. ft. of what were once some of the best shops in the world and leading the mass migration to China. Some say this was inevitable. Many of the plants that Viasystems bought were obsolete or quickly headed that way, or had workforces that could not change, even while the technology was quickly shifting away from them. And sooner or later product build was going to shift to lower-cost regions. But Viasystems certainly expedited the process.
The firm also tied up enormous amounts of capital in dubious debt deals that may have enriched a few lucky souls but didn’t leave their business units with the balance sheets necessary to operate in such a cyclical market. Private equity firms are in the business of buying and selling companies. It was only a matter of time, then, until Viasystems itself would change hands.
There’s still time for the deal to fall through, and it took about 18 seconds after the announcement until shareholder lawsuits began piling up. No matter what happens on the ground, come next spring, Viasystems will fulfill its founders’ vision, taking its place in the rarest air of the PCB world. It just won’t be as Viasystems.
