EMS Newsletter Q2 2020

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Executive Summary

Executive summary of the EMS and ODM industry

The European EMS market grew to a total volume of more than €33bn in 2019 with an expected double-digit annual decline in 2020 while secular growth impulses off-setting the downturn to some extend.

The pandemic will set the “new normal” in the operations of EMS companies focussing on supply chain, remote monitoring and working, increased automated production and diversification of procurement sources.

The consolidation within the EMS industry is expected to accelerate due to COVID-19.

The European EMS market grew to a total volume of more than €33bn in 2019

Valuation level of EMS players worldwide

By the end of July 2020, the valuation levels of the EMS industry recovered to levels of pre-COVID-19 period.

In general, global small and medium-sized EMS companies continue to show significantly higher valuation levels on average (c. EV/EBITDA ≥7x) in comparison to large EMS providers (EV/EBITDA c. 5x) and European players (EV/EBITDA c. 6x).

M&A activity in the EMS industry

In the second half of 2019 the EMS industry has seen some landmark transactions including the acquisition of bebro Group by KATEK and the acquisition of Asteelflash by USI in December 2019.

Transaction highlights in the global EMS sector

  • Lindsay Goldberg LLC-backed portfolio company, Creation Technologies LP, has acquired Applied Technical Services Corporation (ATS)
  • BizLink Holding has agreed to acquire Speedy Industrial Supplies Pte Ltd for a consideration of €43m
  • Intervala, LLC has acquired Princeton Technology Corporation
  • NCAB Group has agreed to acquire The Bare Board Group (US) and Flatfield Multi Print International (NL)
  • Prime Technological Services has agreed to acquire iTechServ and TeligentEMS
  • Incap Corporation has agreed to acquire AWS Electronics Group
  • Universal Scientific Industrial (USI) has agreed to acquire AsteelFlash Group for a cash and equity consideration of $452.23m

Clearwater International’s transaction highlight

Clearwater International advises MAGENWIRTH Technologies GmbH on the sale of bebro electronic GmbH and eSystems MTG GmbH to KATEK SE.

bebro is offering services in the area of electronic and mechatronic assemblies, devices and systems, covering the complete value chain of an EMS service provider. The spectrum ranges from development and prototyping, to the production of medium batch sizes and after-sales services. The group includes the subsidiaries beflex electronic GmbH (beflex) and bebro electronic s.r.o. based in Czech Republic. Through close collaboration with customers and engineers, beflex specialises in the development of prototypes and small batches.

eSystems develops electric mobility solutions and systems for renowned automobile manufacturers worldwide, such as intelligent charging solutions for electric vehicles as part of Smart Home and Smart Grid. Together, bebro and eSystems generate a turnover of approximately €90m and employ 550 staff.

Click the link to view this transaction.

Developments

Overview of the European industry

The European EMS sector reached a market size in excess of €33.0bn in 2019. The impacts of COVID-19 are hard to quantify, but experts expect a double-digit decline for 2020. However, continued secular growth trends including the expansion of the 5G network, IoT, ageing population and electrification of vehicles may offset the adverse development of the EMS industry.

In the wake of the pandemic crisis, EMS companies were facing numerous challenges. An immediate impact of the outbreak of COVID-19 were increased sick leave, decreased capacity, supply chain disruptions and growing uncertainties. Furthermore, decreased order intake during March until June 2020 were observed, especially in the automotive industry. The railway sector showed a heterogenous reaction, whereas the medical technology experienced an upswing.

Reshaping the production in the electronics industry after COVID-19

The global pandemic and the accompanied lockdown has brought the “new normal”, potentially impacting permanently the operations of electronics companies. An example of such a change is to work from home and general social distancing, which may continue as manufacturers see more benefit in keeping these changes for the long-term.

diversifying the supply chain in order to avoid disruptions, as seen during the lockdown, is another measure to mitigate risk and stabilise the business

Another permanent impact is the use of robotics and remote monitoring, which allows companies to gain more control of their operations and processes by incorporating the use of automation in various steps of the manufacturing processes. Therefore, companies have the ability to adjust their production and shipping schedules immediately.

Furthermore, diversifying the supply chain in order to avoid disruptions, as seen during the lockdown, is another measure to mitigate risk and stabilise the business.

A medium-term strategy is diversification of vendor partnerships. By having a wide network and partnerships, companies are able to fill shortages or reduce excess in tumultuous times. Reducing this risk and having partnerships in the open market will establish healthier supply chain. Many manufacturers will be able to benefit by taking the lessons they’ve learned as an opportunity to enhance their supply chains.

Quantitative outlook

The “book-to-bill” ratio, a ratio of orders received to the amount billed for a specific period, is an indicator of mid-term developments.

In the DACH printed circuit board segment, Q1 2020 experienced a strong increase compared to the previous quarter, however not yet taking the impacts of COVID-19 into consideration.

The consolidation in the EMS market is expected to further accelerate due to the effects of COVID-19

Outlook of the of European EMS industry

Experts estimate approx. 8-12% of the capacity was lost in 2020, but this also affected the respective end-markets. A double-digit decline in sales in the European EMS industry for 2020 is anticipated by experts. It could be up to minus 14% in the western countries, up to minus 8% in the eastern countries and around 8-10% in DACH.

The consolidation in the EMS market is expected to further accelerate due to the effects of COVID-19 leading to up to 30% of EMS companies leaving the market (mergers, acquisitions, closures, insolvencies) within the next ten years.

Download our latest EMS Newsletter for a review of recent transactions and comparable company valuations.

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