Tag Archives: mergers

Will ‘OnCore’ Deal Spur Encores?

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Fascinating how aggressive Natel Engineering has been with acquisitions over the past 18 months. First it gobbled up Epic, and this week it announced plans to nab OnCore. Epic was roughly 2.5 times the size of Natel at the time of that deal, and OnCore is almost the same size as Natel is now. Combined, they will form an EMS business with pro forma revenues of $770 million, 13 manufacturing sites and more than 3,700 employees.

And to think that as recently as September 2013, Natel had sales of $100 million spread across three factories, some of which were hybrid thick film, not SMT. That’s a stunning transition.

Can it hold? This latest deal is highly leveraged, and Moody’s gave Natel a B2 CFR rating, (obligations rated B are considered speculative and are subject to high credit risk; the 2 refers to mid-range) and a B1 LGD3 (loss given default) assessment (meaning ?30% and <50%, in Moody’s opinion). After the close, Natel will end up with $340 million in debt, between the new lender and a $60 million note issued by OnCore’s owner, Charlesbank Capital.

We’ve seen huge runups in the past, sponsored by equity capital, that have  burst into flames because the market couldn’t provide the necessary growth to sustain the acquirer’s debt payments. Viasystems is perhaps the most notorious example; that company ended up going through bankruptcy before finally stabilizing and operating in somewhat lower-key manner up until its announced acquisition by TTM Technologies last year. Flextronics went through one major flameout in 1990 before reappearing as a Singaporean company. Of the CIRCUITS ASSEMBLY Top 50 however, today most are few of undue private equity influence.

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For those wondering what EMS or PCB companies might be veering toward financial distress, here’s an interesting tool. I’m guessing Jabil ranks relatively highly on this because of its high exposure to Apple. Companies also seem to be penalized for a high P-E ratio.

M&A is Here to Stay

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There’s been a flurry of EMS acquisition activity of late, with Natel’s acquisition of EPIC Technologies and Benchmark’s pickup of Suntron and CTS among the larger deals. Lincoln International, an M&A advisor, counts nine transactions in the fourth quarter alone, out of 24 total for the year. While Lincoln’s numbers shouldn’t be considered absolute – my guess is that worldwide they are off by well over 50% – they do provide a reasonable snapshot of the industry at a given time.

While I dare say Nam Tai will be the largest EMS company to close its doors in 2014, when all is said and done, I predict we will see a record number of shops close or be bought out in asset deals.

TI + National Semi

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Everyone else seems to be weighing in on the Texas Instruments-National Semiconductor acquisition, so I thought I’d better do the same.

Depending on whom you speak with, the ramifications could be quite large or not terribly noticeable. 7400 TH Myself, I’m going for pretty much not noticeable. First, we’ve never met a National Semiconductor part that we didn’t like. Second, we’ve never met a Texas Instruments part that we didn’t like. I’m guessing that we’ll never meet a Texas National Semiconductor Instruments part that we don’t like either.

I feel better about the fact that it’s one old-guard company buying up another old-guard than if it were a upstart doing so. That makes this look to be more of a “Boeing buying McDonnell Douglas” than an “AOL buying Time Warner.”

Duane Benson
I have met a blog post that I didn’t like

http://blog.screamingcircuits.com/