Are the days of the mega-merger over, or are we just about to experience a new wave?
A good case could be made for either. Which we should root for is another matter.
In Europe, GPV’s merger with its slightly larger competitor Enics in late 2022 created a $1.5 billion entity, sending the combined entity barreling up the CIRCUITS ASSEMBLY Top 50 list. Then consider Kontron and Katec, another rollup that now exceeds a billion dollars plus in sales. When it comes to M&A, Europe at least seems to have it “going on.”
Asia isn’t playing second fiddle. China Electronics Corp., one of the mainland’s largest entities, helps underwrite Nanjing Huadong Electronics, which bought top 15 EMS company TPV Technology in a reverse merger in 2021. TPV’s annual revenues are in the $7.5 billion range. That’s serious cabbage.
If we look back to the late 1990s, there was an extended period of end-market sluggishness. And what we saw was venture capital showing up, taking advantage of lower valuations and the “old guard” (read: the first generation of board shop and EMS assembly owners) looking to cash out.
Think back to 2002, when Sanmina bought (the much larger) SCI in a $6 billion stock swap that resulted in a then-record $14 billion EMS/PCB company. Flextronics’s purchase of Solectron was another good one. It resulted in a $30 billion entity, which even unadjusted for inflation is almost the same size of Flex today.
Celestica had a couple good scores: Singapore-based EMS provider Omni Industries, with its annual revenue of about $1 billion, in 2001, followed a couple years later by Manufacturers’ Services Ltd., (MSL), another global EMS, with revenues of over $800 million.
Those deals, and others like them, were often made possible in large part because of the robust market capitalizations of the acquiring companies. (Indeed, the Kontron acquisition of the much larger Katec is reminiscent of the Sanmina-SCI deal.)
What happened next was the inevitable exit strategy. I sat through many a presentation and market analysis session in the 1990s and 2000s, and every one of them, it seemed, reminded business owners and investors to keep the end-game high on their mind. It was as if they were out to convince the partygoers to grab their coats and head for the doors while the hors d’oeuvres were still being passed.
There were lots of IPOs at that stage. Companies that had been only in the tens of millions in revenue just years before were going public. The industry had only a few billion-dollar players at that point, but it didn’t seem to stop Wall Street from convincing enterprising owners there were far more riches to be made, and with less risk, if they floated their company on the open market.
We all know what happened next. Not long after the dot-com implosion of 2001, investors fled. Bankruptcies ensued. And the Street didn’t give the industry much of a glance for more than a decade.
The PE folks are nothing if not clever at spotting undervalued assets, however. And so long after the industry had been lulled to sleep with little hope of new investment and most of the new money had holed up in Asia, in particular China and Taiwan, here we are again. Investment capital is everywhere we look. There are more financial assets tied up in the electronics manufacturing industry today than ever before. In fact, it’s not even close.
Market watchers Lincoln International reports that fewer than 10 M&A deals were completed last year, and only a couple by larger tier firms. In my estimation that significantly understates what’s really happening, but the actual figures are less significant than the basic trends. At a certain point the PE firms are going to run out of money or interest or time or some combination thereof, and there won’t be anyone else left to sell to. And that’s when the public offerings will start again.
Maybe they are starting already. The EMS industry has added a few new public players in Asia in the past few years, although they were offset in part by delistings in Europe (Neways, Katek).
I’m not considering BYD’s purchase of Jabil’s mobility unit as a milestone, because from my perspective that’s a divestiture, not a consolidation. In the transfer of assets among firms, no newly single (and larger) entity was created.
We industry-watchers love deals because they give us the opportunity to gain better insight into what’s truly going on behind the corporate marketing collateral and press releases. But in truth, they also create issues for the industry in that there’s always the potential that the next downturn will lead once again to mass exodus. Boom/bust cycles aren’t good for anyone, be they investors or personnel. Boom/bust cycles that are exacerbated by investors heading for the exits are that much harder to recover from. So perhaps we shouldn’t wish for the days of the billion-dollar marriages.
But they sure were fun.
P.S. See us at the Del Mar Electronics Show in San Diego on April 24, where our San Diego chapter is sponsoring a pair of talks on PCB design and CAD library development. Thanks to Siemens Digital Industries and PCB Libraries for sponsoring this event.
MIKE BUETOW is president of PCEA (pcea.net); This email address is being protected from spambots. You need JavaScript enabled to view it..
