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Punching Out: What Buyers Are Buying

I recently looked at completed deals in the North American PCB and EMS sectors over the past few years and spoke with several buyers who are active in the M&A market.

According to my records, there were 31 deals in the North American PCB sector from 2021 through August 2024 (11 in 2021, five in 2022, 13 in 2023, and two to date in 2024). I categorize them as follows:

• 10 deals were add-ons (the buyer kept the seller’s facility open to expand geographically or strategically)
• Nine deals were consolidations (the buyer closed the seller’s facility and moved the business into their facility)
• Seven deals were by foreign buyers (facilities were kept open)
• Three were platform deals (private equity buyers who acquired a new platform company)
• Two deals were made to expand the buyer’s technical capabilities (for example, adding design services, etc.)

Over the same period in the EMS sector, there were 64 deals in North America (22 in 2021, 13 in 2022, 18 in 2023, and 11 to date in 2024).  Here is the breakdown:

• 29 add-on deals
• 16 platform deals
• 11 deals involving foreign buyers
• Six were completed to help the buyer add capabilities
• Two were consolidations

Private equity (PE) firms have been very active in both the PCB and EMS sectors. Not only were most of the platform deals completed by PE firms, but PE-owned companies also made most of the add-ons. The strong presence of private equity firms and foreign buyers is at least somewhat due to the tailwinds of reshoring and the U.S. government’s support for these sectors. Strong military budgets have continued to increase the use of electronics in everything, and a relatively strong U.S. economy is also a contributing factor.

Conversely, private companies looking to add revenue and customers completed most of the consolidations, but they already have enough production capacity. For add-ons, many buyers, especially in the EMS sector where customers want their suppliers to be close by, sought to expand geographically.

In speaking with recent and current buyers, the main features they are looking for include reasonable growth in sales and profits (too much growth or falling sales make it hard to value), good management teams, good customers (but not too much concentration), good equipment, and good quality and systems. Contrary to a common opinion, most buyers are not looking for distressed sellers. Of course, many buyers are looking for a relative ”bargain,”, however, most are willing to pay a reasonable valuation for a company that is a good performer rather than looking for a fixer upper. Due to the ups and downs of the market over the past few years, some buyers are willing to somewhat ignore the effects of the COVID-19 pandemic and focus on the current trends of the business.

It always takes two to tango, so sellers’ needs are important too. Most are looking for the highest value possible, of course, but many other factors are important, too. Many sellers want the buyer to keep the facility and employees in place and will even accept significantly lower deals in some cases. Many business owners also own the building, and they may want to sell them together or insist that the buyer enter a long-term lease. Sellers often want as much cash at closing as possible but are willing to accept some level of escrow, earn-out, rollover equity (stock in the buyer and/or their fund), and other forms of deferred payment.

Some of the current main issues in the M&A markets are:

• Uncertain forecasts
• Customer order pushouts
• High inventory levels (both raw materials/components and finished goods)
• The upcoming U.S. presidential election/effect on tax rates
• Uncertainty over the direction of the U.S. economy
• Sellers' high expectations of value vs. cautious buyers

In the PCB sector, the falling number of shops means that there are fewer choices, making it harder to find good matches for buyers’ criteria.

Buyers are currently flush with cash and looking to acquisitions for growth, which should keep the M&A markets rolling. The recent drop in interest rates should help encourage more deals. Many companies that we talk to are having a down year in 2024, but they remain optimistic that they will see an increase in Q4 and/or in 2025. As always, it is important to be prepared. This is a good time to fix a few things before going to market.

Tom Kastner is the president of GP Ventures, an investment banking firm focused on sell-side and buy-side transactions in the tech and electronics industries. GP Ventures has offices in Chicago and Tokyo, with five people in total. Tom Kastner is a registered representative of, and securities transactions are conducted through, StillPoint Capital, LLC—a Tampa, Florida, member of FINRA and SIPC. StillPoint Capital is not affiliated with GP Ventures.