EMS Newsletter Spring 2023Download PDF
Executive summary of the E(D)MS industry
European E(D)MS industry has grown by 15%, reaching a total volume of €48bn
The market size of the European Electronic Design & Manufacturing Services (E(D)MS) industry has grown by 15%, reaching a total volume of €48bn by the end of 2022.
In 2023, the market is forecasted to continue to outperform, driven by several industry trends. This includes, but is not limited to, the reshoring of critical parts and final assembly to Europe and the US, further investments into anti-counterfeiting measures, and growth in automation and low emission manufacturing.
Current valuation levels of E(D)MS players
At the beginning of March 2023, the valuation levels of the E(D)MS peers continued their upward trend, which started at the end of 2022.
In general, global small and medium-sized E(D)MS firms (EV/EBITDA c. 10.9x), and European players (c. 9.4x), continue to be valued significantly higher than global large-tier E(D)MS providers (c. 6.4x).
M&A activity in the E(D)MS industry
Strategic consolidation continues within the E(D)MS industry, especially in Europe. An increase in strategic M&A activity was observed in 2022, with milestone acquisitions including the acquisition of Enics by GPV, amongst others.
Transaction highlights in the global E(D)MS sector
- ICAPE Group, the French PCB supplier, continued its expansion and completed six acquisitions across Europe during the past 12 months, including the French PCB supplier CEBISA France; the Swedish PCB manufacturer MMAB Group; the Danish PCB supplier Mon Print A/S; the Portuguese PCB supplier LusoDABEL; the German PCB supplier SAFA 2000, and the French manufacturer of human-machine interface solutions and custom-made electronic components, Fimor Electronics.
- Cicor Technologies, a Swiss PCB manufacturer, acquired Phoenix Mecano and Digital Elektronik GmbH, manufacturers of electronic assemblies.
- Grundig Business System, a German EMS provider, acquired elektron Systeme und Komponenten, in Germany.
- Foxconn, a Taiwan-based EMS provider, acquired Prettl SWH, a Germany-based company engaged in designing and assembling cable solutions for the automotive industry.
Selected transaction highlights of 2022
Denmark based GPV International A/S agreed to merge with Enics AG, the Swiss industrial electronics services provider. Enics AG reported revenue of DKK 4.0bn (EUR 537m)1) and EBITDA of DKK 220m (EUR 30m), at the time of the acquisition. The Company has a total of seven factories in Europe and Asia.
GPV is one of the largest electronic manufacturers in Europe, providing solutions for several industries such as high-tech consumer, med-tech, cleantech, measurement and control, transportation, building technology, and other industrials applications.
The merger created one of the largest E(D)MS companies in Europe, with more than 7,500 employees and operations worldwide. Together, the new group will focus on electronics manufacturing with a strong and recognised operational setup, professional design and engineering capabilities, and activities within test systems, in-house mechanics, and cable-harness manufacturing.
Overview of the European E(D)MS industry
The market size of the European E(D)MS industry reached a total volume of €48bn by the end of 2022, indicating 15% growth compared to the previous year, with further growth expected in 2023.
Growth in the E(D)MS sector is driven by several industry trends, including reshoring of critical parts and final assembly to Europe and the US, further investments into anti-counterfeiting measures, and growth in automation and low emission manufacturing, amongst others.
European and US companies are expected to reshore production activities from Asia back to Europe or the US
Reshoring of critical parts and final assembly to Europe and the US
European and US companies are expected to reshore production activities from Asia back to Europe or the US over the next few years, securing limited volumes and/ or critical parts and products, customer proximity, and increasing the production capacity in Europe and the US, as a consequence.
Central and Eastern Europe are continued to be a favourable option for new production locations. Germany and the Benelux countries are increasingly being considered as serious options for new production locations, due to their well-established industrial infrastructure and strong engineering capabilities.
New anti-counterfeiting techniques for microelectronics on the rise
The trade of counterfeit goods in the microelectronics sector has risen, especially during COVID-19 and the recent global chip shortages. This situation has created an urgent need for E(D)MS companies to improve their current technologies and develop new approaches to detect counterfeit products.
There are two promising new authentication methods, physically unclonable functions (PUFs) and quantum dots (QDs) based. PUFs are devices with unique physical properties that are inherently difficult to reproduce, making them useful for anti-counterfeiting measures. QDs, on the other hand, can provide unique optical properties that are also difficult to replicate, making them a potential alternative to traditional anti-counterfeiting techniques, such as holograms.
In addition to these new approaches, the use of AI-based software applications and big data analysis can also help increase the effectiveness of existing inspection measures.
Talent shortage and ESG drive growth in automation and low-emission manufacturing
Significant investments into automation, AI-based data analysis, and the reduction of labour-intensive work caused by talent shortages and a lack of qualified professionals, all continue to be important drivers in shaping the E(D)MS market.
A sustainability mindset has been integrated into every stage of the electronics manufacturing process. Companies implement low-emission manufacturing processes and increasingly adopt the materials of recycling and recovery schemes, to lower the emissions. For example, the trend of adopting flexible PCBs, instead of the conventional rigid electronics, and the usage of plastic or paper, rather than conventional flame-retardant substrates. In addition, additive manufacturing processes are increasingly interesting, which reduce the cost and emissions through printing materials, only where needed.
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 German PCB segment market, the ‘book-to-bill’ indicator displays an increase starting from Q1 2022, with an overall favourable outlook in Europe and North America.
European E(D)MS industry outlook
Greater automation through artificial intelligence, strengthening production in Europe, and the digitisation of workflows, are seen as the biggest opportunities for the E(D)MS industry, over the next year and beyond.
Meanwhile, other mega-trends, including connectivity, digital twins, and metaverse, are becoming the engines for long-term growth in the E(D)MS industry.
The future of electronics production is automation through AI and production setup in Europe
With the increasing demand for electronic components used in autonomous driving and AI-based products, OEMs are becoming more selective when choosing their E(D)MS partners. The quality of electronic components and the overall setup of manufacturing processes needs to ensure the highest KPI and industry standards.
Selection criteria from OEMs, first tier suppliers for E(D)MS providers, are not limited to best pricing approaches. Nowadays, strong technological know-how, industry expertise, and references within the industry are a necessity.
Megatrends revolutionising the automotive and industrial manufacturing sector are securing long-term growth in the E(D)MS industry
Connected cars generate a huge amount of data that needs to be processed and distributed securely
The automotive industry is experiencing transformation, from the production of traditional electromechanical-focused vehicles, to a new era of software-defined vehicles, driven by connectivity and autonomous driving megatrends.
Connected cars generate a huge amount of data that needs to be processed and distributed securely, at very low latency. To ensure safe communication, highly automated vehicles require a wide variety of sensors, such as LiDRs, RADARs, ultrasonic sensors, and image sensors, as well as sophisticated telematics and other connectivity protocols, which provide E(D)MS players with new design and production opportunities.
Not only with connected cars, over the past few years, a large amount of data has been collected through the increased digitalisation and adoption of industrial IoT, within industrial manufacturing businesses. Since a large percentage of this data remains unused, there is huge potential for companies to increase data utilisation.
One trend is the emergence of AIoT, which leverages IoT data for valuable insights and intelligence, through using AI-based analysis.
Another trend is the increasing development of digital twins and the industrial metaverse.
Another trend is the increasing development of digital twins and the industrial metaverse
Digital twins are virtual replicas of physical products, processes, and systems, that can be used to model, simulate, and optimise, the performance of real-world products and operations. In order to adopt the technique, specialised sensors are required to support the virtual twins’ ability to simulate the attributes of its physical counterpart, which is expected to drive further demand of microelectronics.
On the other hand, the industrial metaverse is a virtual environment that simulates and integrates multiple digital twins and real-world systems.
By combining digital twins and the industrial metaverse, companies can create a comprehensive digital representation of their operations to optimise and improve efficiency, reduce downtime, and make better data-driven decisions.
As technology and software become increasingly decisive for future vehicles, traditional E(D)MS providers will need to invest in in-house engineering, build up long-term partnerships, begin joint ventures with tech companies or others, to meet the increasing technological requirements created by highly automated and connected vehicles. This will require a significant investment in R&D and the development of new technologies and processes, to enable seamless communication between vehicles, manufacturers, and the wider ecosystem, resulting in further growth impulses within the E(D)MS sector.
Download our latest EMS Newsletter for a review of recent transactions and comparable company valuations.