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Electronic Manufacturing

Services (EMS)

NEWS

Q2 2017

Executive summary of the EMS and ODM industry

The global EMS and ODM (Original Design

Manufacturing) market is forecasted to reach over

€540m in 2017, mainly driven by the growing

digitalisation across non-technology sectors including

medical, aerospace and defence, and industrial sectors.

However, the 3C segments (computer, communication

and consumer) still remain the most dominant sectors.

The transformation of EMS companies towards full-

service providers will drive consolidation of the industry

due to additional required service offerings and

international expansion.

M&A activity in the EMS industry

The number of M&A transactions in Q1 and Q2 2017

stagnated compared to the same period in the previous

year. Europe experienced the highest deal activity in the

EMS sector.

Clearwater International successfully completed these

recent EMS transactions:

Valuation level of EMS players worldwide

Towards the end of Q2 2017 trading multiples increased

and reached a historic record high.

Small and medium-sized EMS companies are

continuing to show higher valuation levels in comparison

to large EMS providers.

Clearwater International previously advised on a

European landmark deal with the sale of Macdonald

Humfrey to L-3 Communications (see right).

Transaction highlight

Clearwater International has advised the shareholders of

one of the UK’s largest independent automation, control

and IT solutions system integrators, MacDonald Humfrey

Automation Limited (MacDonald Humfrey), on its cross-

border sale to L-3 Communications (L-3), the New York

headquartered provider of communications and electronic

systems products used on military and commercial

platforms.

MacDonald Humfrey is a globally recognised leader in the

deployment of effective and efficient checkpoint security

and wider aviation solutions, as well as in the development

of state-of-the-art process automation and collaborative

robotic capabilities supporting aviation and other end

markets.

MacDonald Humfrey’s aviation solutions have been

deployed throughout Europe, the Middle East and Canada,

and most recently in the US where the company has

engaged with airlines and airports to help reduce lengthy

checkpoint delays. MacDonald Humfrey is also a key

supplier to other high-end process automation markets

including aerospace and automotive where it has

automated the assembly of cars and aircraft engines.

Clearwater International

advised MacDonald

Humfrey on its cross-

border sale to L-3

Communications for a

purchase price of

approximately €300m

Introduction

Automation, control and IT

solutions systems integrators

Clearwater International advised

MacDonald Humfrey (Automation)

Limited on its cross-border sale to

L-3 Communications for a

purchase price of approx. €300m

MACDONALD HUMFREY

Independent investment

company


Induc and Co-investors on the

partial sale of Grundig Business

Systems to VR Equitypartner

INDUC

Manufacturer of electronic and

mechatronic solutions


SEIDEL Holding on the sale of

SEIDEL Electronics Group to SVI

Public Company Limited

SEIDEL HOLDING


Services (EMS)

NEWS

Q2 2017

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 development.

In the GSA (German Speaking Area) printed circuit

board segment, the ratio increased from 0.94 at the

end of December 2016 to a 12 month high of 1.23 by

the end of February 2017.

Continued transformation of the EMS industry

The EMS industry is continuing to undergo a shift in its

business model. Due to the expected strong growth in

non-technology sectors EMS companies need to adapt

towards the needs of OEMs in terms of complexity,

flexibility, cost and energy efficiency.

Current market dynamics put increasing pressure on

small and medium-sized EMS providers for

international expansion and further consolidation in

order to offer one-stop-shop solutions to OEMs with

regional proximity.

Due to growing integration of EMS providers in OEMs

logistics, rapid delivery will be one of the major focuses

for the EMS industry.

Size and structure of global EMS and ODM industry

The global EMS and ODM market is forecasted to

reach over €540m by the end of 2017 representing a

CAGR (2015-2020) of 7.0% for EMS and 7.4% for

ODM providers.

Strong growth is expected in the high-complexity

sectors including industrials, medical, aerospace,

automotive, and wearable sensors. EMS revenues in

the non-technology sectors are projected to grow at a

CAGR of approx. 13% by 2020.

However, the commodity markets (3C segments) will

remain the dominant end-markets until 2020 with more

than three quarters of the market share.

Growth drivers in the EMS and ODM industry

An ageing population together with an increasing life

expectancy and growing health consciousness create a

dynamic market environment for EMS and ODM

providers. The medical electronics segment is expected

to create large sustainable demand for medical

devices.

OEMs specifically in Asia are increasingly considering

outsourcing EMS and ODM due to significant capital

investments for in-house manufacturing and

improvements in their time to market and cost

structure.

Moreover, the growing digitalisation in industrials (IIoT)

and in consumer sectors (wearables) provides

attractive revenue potential for EMS and ODM

companies. The global wearable sensor market shows

a remarkable forecasted CAGR of approx. 45% until

2020 supported by growing healthcare expenditures

and declining prices of raw materials.

An additional trend that will shape the EMS industry is

the growing pressure on manufacturers to adopt “green

electronics manufacturing” for more energy efficiency

and eco-friendly manufacturing, while introducing new

methods to produce devices that consume less energy.

1. Current trends in the EMS industry

Source: Zentralverband Elektrotechnik- und Elektronikindustrie,

Netherlands Ministry of Foreign Affairs, Clearwater Research

1.00

1.02

1.04

1.09

1.10

1.17

0.82

0.81

1.11

0.94

1.06

1.23

1.14

Mar

16

Apr

16

May 1

6

Ju

n 1

6

Ju

l 16

Aug

16

Sep

16

Oct 16

No

v 1

6

De

c 1

6

Ja

n 1

7

Feb

17

Mar

17


Services (EMS)

NEWS

Q2 2017

During the first half of 2017 M&A activity in the EMS industry stagnated compared to the first half of 2016. In Q1 and Q2 of

2017 Europe had the highest deal activity in the EMS sector.

Selected EMS transactions worldwide

Date Target Bidder Description

04/2017Firstronic

LLCLacroix SA

Lacroix acquired Firstronic, a US-based provider of electronic

manufacturing services, for an undisclosed consideration

04/2017STI Enterprises

(80% stake)

Integrated

Micro-Electronics, Inc

IMI acquired a stake of 80% in STI Enterprises, a UK-based

contract designer and manufacturer of electronics, for an

undisclosed consideration

03/2017

Wilson-Hurd

Manufacturing

Co., Inc.

Nelson-Miller, Inc.

Nelson-Miller acquired Wilson Hurd, a US-based provider of

custom printing, fabricating, and electronic manufacturing

services, for an undisclosed consideration

02/2017 BHE A/SGPV

International A/S

GPV acquired BHE, a Denmark-based EMS provider, for an


01/2017FRANCELOG

Electronique S.A.

Tec

Automatismes

S.A.S.

Tec Automatismes acquired FRANCELOG, a France-based

designer and manufacturer of industrial electronic assembly,

for an undisclosed consideration

01/2017SKN

Electronics LimitedThe Pexion Group

The Pexion Group acquired SKN Electronics, a UK-based

surface mount assembly company, from Ahmed Family for an


01/2017 PKC Electronics Enics AG

Enics acquired PKC Electronics with factories in Raahe,

Finland and Suzhou, China, for an estimated consideration of

€10m

Source: MergerMarket, Clearwater Research

2. M&A activity in the EMS industry


Services (EMS)

NEWS

Q2 2017

3.0x

3.5x

4.0x

4.5x

5.0x

5.5x

6.0x

6.5x

7.0x

7.5x

8.0x

Jul 2012 Jul 2013 Jul 2014 Jul 2015 Jul 2016

6.6x6.0x

4.9x

9.9x

8.6x

7.8x

10.5x

8.5x

6.6x

8.3x

7.4x

6.6x

2016 2017 2018

Large-tier Medium-tier Small-tier Total

Company Market cap Net Debt EV Share Revenue-CAGR EBITDA Margin EBIT Margin EV / Revenue EV / EBITDA EV / EBIT

Price 2013-15 2015-17 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018

Large Tier EMS Provider

Hon Hai 56,972.8 (9,575.8) 47,397.1 3.3 6.5% 0.3% 5.5% 5.6% 5.8% 4.0% 4.2% 4.4% 0.4x 0.4x 0.3x 6.9x 6.6x 5.9x 9.4x 8.8x 7.8x

Flextronics 7,620.0 984.9 8,604.9 14.3 (1.2%) (1.0%) 5.0% 5.3% 5.5% 2.7% 3.2% 3.5% 0.4x 0.4x 0.4x 8.1x 7.5x 7.0x 15.4x 12.5x 10.9x

Quanta 7,947.6 (1,728.6) 6,219.0 2.1 7.0% (1.2%) 2.9% 3.0% 3.2% 2.1% 2.3% 2.4% 0.2x 0.2x 0.2x 8.3x 7.2x 6.6x 11.3x 9.7x 8.6x

Pegatron 7,164.7 (2,006.2) 5,158.5 2.8 13.0% (0.6%) 3.9% 4.0% 4.0% 2.8% 2.8% 2.9% 0.2x 0.1x 0.1x 4.0x 3.8x 3.4x 5.5x 5.3x 4.7x

Jabil 4,610.6 1,264.3 5,874.9 25.7 3.8% 3.2% 6.9% 7.3% 7.3% 3.1% 3.6% 3.9% 0.4x 0.3x 0.3x 5.2x 4.8x 4.6x 11.6x 9.6x 8.6x

Compal 2,548.8 (49.3) 2,499.4 0.6 10.6% (1.1%) 2.2% 2.3% 2.3% 1.4% 1.5% 1.6% 0.1x 0.1x 0.1x 5.2x 4.6x 4.5x 7.9x 6.9x 6.4x

Sanmina 2,534.0 (31.0) 2,502.9 33.5 3.5% 4.6% 5.3% 6.0% n/a 3.5% 4.2% n/a 0.4x 0.4x n/a 8.2x 6.8x n/a 12.2x 9.7x n/a

Wistron 2,205.6 144.4 2,350.0 0.9 (0.1%) 12.3% 2.1% 1.9% 2.3% 0.9% 0.9% 1.2% 0.1x 0.1x 0.1x 5.9x 5.5x 4.2x 13.6x 11.6x 7.8x

Celestica 1,673.1 (290.4) 1,382.7 11.8 (1.4%) 5.3% 4.2% 4.9% 5.0% 3.0% 3.7% 3.9% 0.3x 0.3x 0.2x 6.3x 5.2x 4.9x 8.8x 6.7x 6.3x

Plexus 1,527.3 (216.3) 1,311.0 45.3 8.2% (1.3%) 6.4% 6.9% 6.8% 4.6% 5.1% 5.0% 0.6x 0.6x 0.5x 9.1x 8.4x 7.8x 12.7x 11.3x 10.4x

Median 5.1% (0.2%) 4.6% 5.1% 5.0% 2.9% 3.4% 3.5% 0.3x 0.3x 0.2x 6.6x 6.0x 4.9x 11.5x 9.6x 7.8x

Mean 5.0% 2.0% 4.4% 4.7% 4.7% 2.8% 3.2% 3.2% 0.3x 0.3x 0.3x 6.7x 6.0x 5.4x 10.9x 9.2x 8.0x

Medium Tier EMS Provider

Fabrinet 1,438.8 (187.2) 1,251.7 38.5 15.2% 30.5% 10.3% 11.1% 11.0% 8.7% 9.6% 9.8% 1.2x 1.0x 0.8x 11.6x 8.6x 7.7x 13.8x 9.9x 8.6x

Benchmark 1,419.7 (467.3) 952.3 28.5 0.7% (3.6%) 6.1% n/a n/a 3.8% 4.0% 4.4% 0.5x 0.5x 0.4x 7.7x n/a n/a 12.3x 11.5x 10.1x

Hana 1,062.0 (263.5) 798.5 1.3 7.4% 5.2% 15.1% 15.6% 15.4% 9.5% 10.2% 10.2% 1.5x 1.3x 1.2x 9.9x 8.6x 8.0x 15.8x 13.2x 12.0x

CTS Corp. 631.8 (23.5) 608.3 19.2 (3.4%) 3.8% 18.8% 19.2% 19.5% 14.0% 14.6% 15.9% 1.7x 1.7x 1.6x 9.3x 8.8x 8.2x 12.5x 11.5x 10.0x

VS Industry 486.7 52.0 538.7 0.4 20.9% 28.8% 10.1% 9.4% 9.0% 7.3% 7.3% 7.2% 1.1x 0.8x 0.6x 10.6x 8.3x 7.0x 14.6x 10.7x 8.8x

Median 7.4% 5.2% 10.3% 13.4% 13.2% 8.7% 9.6% 9.8% 1.2x 1.0x 0.8x 9.9x 8.6x 7.8x 13.8x 11.5x 10.0x

Mean 8.1% 12.9% 12.1% 13.8% 13.7% 8.6% 9.2% 9.5% 1.2x 1.0x 0.9x 9.8x 8.6x 7.7x 13.8x 11.4x 9.9x

Small Tier EMS Provider

SVI 352.9 (84.8) 268.1 0.2 0.9% 25.7% 8.0% 8.2% 8.1% 5.3% 5.2% 5.5% 0.9x 0.8x 0.7x 11.7x 9.8x 8.7x 17.5x 15.4x 12.8x

Ducommun 321.5 136.2 457.7 28.5 (4.9%) (8.1%) 9.5% 9.9% 10.8% 5.4% 4.9% 6.0% 0.9x 0.9x 0.9x 9.9x 9.4x 8.2x 17.6x 19.0x 14.8x

TT Electronics 333.8 62.7 396.4 2.1 (2.1%) 9.0% 8.5% 9.6% 9.9% 4.7% 5.7% 6.0% 0.6x 0.6x 0.6x 7.2x 6.0x 5.7x 13.0x 10.2x 9.5x

Sparton 199.6 76.5 276.1 20.3 16.1% (0.8%) 6.4% 6.6% n/a 2.5% 2.5% n/a 0.8x 0.8x n/a 12.1x 12.2x n/a n/m n/m n/a

Neways 145.9 30.0 175.9 12.7 18.8% 6.0% 4.9% 5.7% 6.4% 3.1% 3.7% 4.4% 0.4x 0.4x 0.4x 9.2x 7.3x 6.1x 14.6x 11.3x 8.9x

Stadium 57.4 3.7 61.1 1.5 13.0% 7.3% 9.2% 11.5% 11.3% 6.2% 9.8% 9.9% 1.0x 0.9x 0.7x 11.0x 7.6x 6.6x 16.3x 8.9x 7.5x


Mean 7.0% 6.5% 7.8% 8.6% 9.3% 4.5% 5.3% 6.3% 0.8x 0.7x 0.7x 10.2x 8.7x 7.1x 15.8x 12.9x 10.7x

Total EMS Providers

75- Percentile 13.0% 7.3% 9.2% 9.7% 10.6% 5.4% 5.7% 6.6% 0.9x 0.8x 0.7x 9.9x 8.6x 7.7x 14.8x 11.6x 10.3x


Mean 6.3% 5.9% 7.2% 7.7% 8.0% 4.7% 5.2% 5.7% 0.7x 0.6x 0.5x 8.4x 7.3x 6.4x 12.8x 10.7x 9.2x

25- Percentile (0.1%) (1.0%) 4.9% 5.2% 5.1% 2.8% 3.2% 3.7% 0.4x 0.3x 0.3x 6.9x 5.9x 5.1x 11.5x 9.4x 7.8x

EV/EBITDA by Size

Size by market cap: Large-tier > €1.5bn

Medium-tier €500m - €1.5bn

Small-tier < €500m

EV/EBITDA Development

Source: S&P Capital IQ 7 July 2017, Clearwater Research

Median EV/EBITDA Median EV/EBITDA

Comparable company valuation – EMS industry (categorised by market cap)

3. Valuation of EMS companies worldwide

Jul 2017


Services (EMS)

NEWS

Q2 2017

Tokyo

Mumbai

Shanghai

Beijing

Dallas

São Paulo

Boston

New York

Detroit

Chicago

San Francisco

Lisbon

PortoMadrid

Barcelona

Paris Frankfurt

CopenhagenAarhus

DublinUK (4)

Milan

Cleveland

Contact

Coordinating as a single team, more than 200 experienced professionals have been responsible for the successful

completion of over 1,300 deals worth in excess of €50bn; in the last ten years over half of these have had

transaction values between €10m and €200m. Working alongside directors, shareholders and investors we advise

on all aspects of corporate finance from mergers and acquisitions (M&A) and company sales to management buy-

outs (MBOs) and fundraising transactions.

With 15 offices around the world and deals completed in 31 countries, our team makes us a natural choice for

transactions requiring knowledge of, and access to, global markets. We have longstanding relationships with M&A

firms around the globe; including the US, Japan, and India; helping us to provide clients with unique insights into

international opportunities.

Our 10 industry teams, focusing on automotive, consumer, energy and utilities, food and beverage, financial

services, healthcare, industrials and chemicals, real estate, support services and TMT, add to our compelling

proposition. Each sector is supported by an international research and origination team who provide our clients with

insights into strategic opportunities.

Private equity firm


S.I. Finance (a subsidiary of

SUEZ) on the sale of its 49.6%

limited partnership interest in BuS

Elektronik to the management

SUEZ (S.I. FINANCE)

Manufacturer of electronic and

mechatronic solutions


SEIDEL Holding on the sale of

SEIDEL Electronics Group to SVI

Public Company Limited

SEIDEL HOLDING

World leading manufacturer of

avalanche transceivers


SEIDEL Privatstiftung on the sale

of PIEPS to Black Diamond

PIEPS

Independent investment

company


Induc and Co-investors on the

partial sale of Grundig Business

Systems to VR Equitypartner

INDUC GMBH

Partner Offices

Clearwater International Office


Services (EMS)

NEWS

Q2 2017

Contact

W W W . C L E A R W A T E R I N T E R N A T I O N A L . C O M

GERMANY • CHINA • DENMARK • FRANCE • IRELAND • PORTUGAL • SPAIN • UK • US

Jon Hustler

DD: +44 7788 144 470

Email: [email protected]

Francisco Gómez

DD: +34 699 446 314


Markus Otto

DD: +49 (172) 61 34 128


Carsten Rydahl

DD: +45 27 62 03 73


Simon Zhang

DD: +86 6341 0699 x813


Philippe Croppi

DD: +33 1 53 89 0503


Rui Miranda

DD: +351 918 766 799


John Sheridan

DD: +353 1 517 58 41


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