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If you want to know what is going on in our industry when it comes to mergers and acquisitions, there is no better person to turn to than Tom Kastner. Whenever I want to verify a rumor of a company being bought or sold, Tom is the first person I call, and unless he is under an NDA, he will fill me in. In this, our latest discussion, we talked about the PCB industry’s M&A activity in 2016 and what Tom expects to see in 2017.
Dan Beaulieu: It seems that there is a lot of activity going on right now when it comes to companies buying other companies. Is that real or just my perception?
Tom Kastner: There is a lot of activity in the past 12 months. I count 10 deals in the PCB sector in the last 12 months, and there are at least five deals going on at present that I am aware of or working on. I am also working on several projects in the EMS/PCBA sector for buyers.
Beaulieu: What types of sales are happening?
Kastner: A few of the sales have been larger companies buying smaller ones, and there have been a few mergers such as KCA/Marcel (now called Summit Interconnect) and Dragon/Electro-Plate. Many of the buyers are larger companies that are private equity-backed or publicly traded, such as Advanced Circuits, FTG, APCT, OSI, etc. More than half of the recent deals have been consolidations (seller’s shop was merged into the buyer’s).
Beaulieu: What are the reasons people are selling now?
Kastner: Most are selling to retire or to focus on other business. Several of the deals are due to underperformance. Of the owners I speak with, most are interested in retiring, but some would like to find a buyer/investor who can take the company to the next level.
Beaulieu: I’ve noticed that there have been several “roll-ups” since last we talked. Please explain to our readers what a roll-up is, who gets involved in them and why.
Kastner: Because many shops are running below capacity, the idea is that by combining two or more shops, the business will run more efficiently and profitably. Also, a larger shop may be more able to invest in new equipment and technologies. These deals can be tricky, and it requires at least one of the shops to close, and transferring customers may be difficult.
Beaulieu: Who would you recommend a roll up deal to, a seller or a buyer?
Kastner: It can be beneficial to both sellers and buyers. For the seller, the owner can retire, or perhaps focus on a role with the merged company that they enjoy the most, such as sales or operations. For the buyer, it can help fill a shop with more work, and it can bring new customers, products, people, reps, equipment, and technologies.
Beaulieu: Are there any major trends that you are seeing out there?
Kastner: Two major trends: Customers are insisting that shops invest in technology, such as direct imaging and laser drills. Also, foreign buyers would like a physical presence in the U.S.
Beaulieu: And what do you think this means?
Kastner: It will be increasingly difficult for smaller shops to keep up with larger shops that are investing in the newest technology. If they have survived this long, they probably have their costs down and have an interesting niche in the market. Regarding foreign buyers, we’ll probably see more foreign-owned shops in the U.S. down the road. This may be part of their global strategy, and it allows them to make prototypes and quick turns in the U.S. and volume production overseas.
Beaulieu: What kind of deals have you been involved in since we last spoke?
Kastner: Since we last talked I closed the sale of Tech Circuits to APCT.
Beaulieu: Without breaking any confidentialities, what do you have on your plate now?
Kastner: I am representing a $4.5 million PCB shop that is focused on mil-aero prototypes and quick turns, and I am representing a few buyers in the EMS space (one in PCBA, one in wireharness/assemblies).
Beaulieu: I know that you have made some additions to your own firm since we last talked. Can you tell us about those?
Kastner: We added three people: two professionals and one assistant/researcher in the U.S. That brings us up to five total, with four in the Chicago area and one in Tokyo. We are still focused on the electronics and tech fields, both sell-side and buy-side advisory services. We also offer grooming services, in which we help sellers get ready to go to market.
Beaulieu: Sounds like you are prepping for the future. What do you think that is going to look like?
Kastner: We are busy already, but we think that baby boomer owners will be retiring in droves over the next few years. Also, there is a tremendous amount of strategic capital and private equity capital in the world that is seeking companies to buy, in a wide variety of sectors. I believe that the number of PCB and EMS shops will continue to drop, but the shops that remain and invest in equipment and technology will be stronger than ever.
Beaulieu: Any final comments?
Kastner: I am always glad to talk with owners or their advisors on how the M&A process works, potential buyers or sellers, valuations/terms, and how to prepare a business for sale.
Beaulieu: Tom, it’s always a pleasure talking with you. Thanks for taking the time today.
Kastner: My pleasure.
Dan Beaulieu’s “It’s Only Common Sense” column can be read every Monday in the I-Connect007 Daily Newsletter. To read past columns or to contact Beaulieu, click here.
Tom Kastner is the president of GP Ventures, an M&A advisory firm focused on services for electronics and technology companies. To contact Kastner, or read past columns, click here.
Editor's Note: This article originally appeared in the December 2016 issue The PCB Magazine.