The PCB Sector—What Buyers Look for and Recent Deals !
The past few months have seen a rash of PCB deals in North America, for a variety of reasons. Here are some of the deals completed during the past eight months:
That’s eight deals in eight months, and there were probably some other deals that occurred under the radar. The trend is expected to continue, although perhaps not at the same pace. Factors such as the general aging ownership of North American PCB shops, the lack of overall sustained growth, foreign competition, lack of investment for many smaller firms, difficulty in finding skilled workers, overcapacity, etc., will continue the trend towards consolidation. A great number of North American shops are owned by baby boomers who may be retiring in the next 10-15 years. Some people in the industry feel that the number of independent PCB shops in North America could go from the current 200 or so down to 100 or even 75 in 10 years.
An interesting trend for these recent deals is the participation of publicly-held and private equity-backed buyers. That is an indication that investors are betting positively on certain companies in the sector to grow sales and profits. Most of the recent deals appear to be consolidations, and the others are product and/or geographical expansions.
For the PCB shop owner who is considering a sale soon or within 3–5 years, here are some of the things that buyers are looking for in an acquisition:
Reliable financials: In general, acquirers are looking to grow sales and profits, and they get turned off if the seller’s financials are not in good shape. Prior to going to market, it is recommended to obtain a CPA review or audit, or have a CPA perform a quality of earnings report. A clean set of financials goes a long way to help a buyer feel at ease, to minimize questions, and to help a deal go smoothly.
Additional customers: In a consolidation (where the seller’s business is closed and wrapped into the buyer’s operations), the buyer is primarily acquiring a book of business. This can be a relatively easy way for the buyer to gain new customers and fill up capacity. The seller in this case is often not very profitable, but if the work is moved to the buyer’s facility the contribution margin can be fairly high. The buyer’s facility may be more efficient, and by removing various synergies they can save costs too. While closing the shop may not always be appetizing to the seller, the buyer often requires some of the key people, and it is usually a better deal than liquidating. Buyers are always interested in the length and quality of customer relations, and are turned off by too much customer concentration, turnover, or a lack of good customer relationships.
Up-to-date facilities: Buyers do not expect to enter the Taj Mahal when visiting a seller; however, they expect that a certain amount of investment has taken place over the years. Some of the investments can be visual, such as proper maintenance of facilities. Mostly, buyers are concerned about the age and condition of the equipment. As technology moves forward, it will be increasingly difficult to attract customers, key employees, and buyers unless a shop has state-of-the-art equipment.
Key management: Buyers are typically wary of key-person risk, in which the seller owns the shop, calls on customers, processes all quotes, runs operations, and coordinates everything, including the Mega Millions pool. A good management team can help allay buyers’ worries that the whole company will fall apart if the owner retires.
Certifications: Mil certs, AS9100, ISO, etc., can enhance the value of the company, as well as make it attractive to customers. On the other hand, woman-owned and minority-owned certifications may cause the buyer to wonder if customers will walk if the company is too dependent on that status. If there is any question on the loyalty of customers, sometimes a good idea is to obtain a third-party customer survey prior to going to market.
Lack of other risk factors, ease of transition: Clean environmental record, no lawsuits, no employee issues, low turnover, etc. Various synergies such as similar ERP systems, the same types of policies, etc., can help a buyer feel comfortable with the acquisition. Also, the reasonableness of the owners is a major factor; the buyer and seller may need to work together for quite some time, so it is important that both parties have reasonable expectations from the beginning.
The rash of recent deals in North America show that deals can get.
by Kaylee Wang