Executive teams in electronics manufacturing services (EMS) solutions companies constantly explore ideas to grow market share and business opportunity. Vertical integration, mergers and acquisitions, and joint ventures are often mentioned wherever expansion is part of the discussion. (Read: Trends in contract electronics M&A)
More detailed discussions regarding new business model formation require clarity to help insure successful outcomes.
Below are some of the ways these deeper conversations will evolve:
- What detailed steps define best practices in contract electronics EMS providers acquisitions
- How do other EMS companies handle merger and acquisition integrations?
- Based on our current footprint or markets, which geographies or technologies should we consider to become more competitive?
- Which EMS providers could enhance our offerings or are best suited to help us expand into new markets and geographies?
- How do we find distressed provider candidates serving similar markets or markets we want to expand into?
- How does valuation for contract EMS differ based on technical capabilities and markets served?
- What industry trends are impacting EMS companies to expand their portfolios?
- How are other EMS companies diversifying?
- Which criteria are ideal for target search of EMS acquisition prospects?
- What are some experiences and stories of other EMS companies that offer good insight for better decision-making?
- How best to present EMS value proposition in memorandum of confidentiality documents?
- How much should we pay the seller?
- How do we position our company for best price to sell?
- What is a reasonable buy or sell price and how do we determine this?
Answer to the questions differ depending on the EMS provider’s long term objectives but one constant remains: identifying and targeting suitable contract electronics services organizations and factory locations is just as important as having a useful assessment or action plan detailing interest by fully vetted electronics solutions candidates with a genuine interest to consider any proposal by EMS firms initiating partnerships or acquisitions.
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Detailing a clear roadmap how such partnerships or acquisitions can work is the tricky part.
A recent Harvard Business Review report cites the failure rate for mergers and acquisitions ranges from 70 percent and 90 percent. Some reasons are found in the complexity of two organizations coming together when multiple locations and offices are in play, cross-border IT infrastructure and financial regulation are also important among other considerations.
EMS CEOs considering M&A usually do so to extend reach into an existing or new markets and/or extend technological capabilities. Regardless of the direction intended, a clear strategy is needed.
Fig.1 Merger & Acquisition Success
The chart above displays chances for EMS M&A success based on whether or not the EMS buyer acquiring another EMS company is targeting an EMS provider with technology that matches his own, or has technology that is an extension of his or, has completely new technology. The same goes for viewing the ‘x’ axis when evaluating markets served by the EMS provider being considered for acquisition.
Beyond targeting a specific industry or end market, other equally important considerations include identifying and mapping internal process of both organizations, evaluating the fit for how each organization is structured, locations of regional and global facilities and offices, synchronization challenges for data and applications such as type of technologies currently used by each organization plus, seeing how legacy systems and languages enhance and conflict.
Information
How a successful EMS M&A integration comes together is more than just knowing the EMS industry and includes understanding the supporting technologies in industry and how to put these together to serve existing business needs and future outcomes desired.
Building proper roadmaps to keep both parties on task is key. And after signed LOIs and pre-deal legal fees are paid, the importance of aligning post-deal synergies and managing expectations of both parties cannot be underestimated if you want to insure a smooth transition to help improve opportunities for success.
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Ask any banker serving the EMS M&A industry about common reasons for EMS M&A failure and they’ll tell you poor targeting and vetting of EMS firms combined with bad post-acquisition planning. And there’s more.
For EMS firms and organizations wanting more information about EMS acquisition trends, EMS M&A challenges and success, integration business models and what the future EMS business model looks like use the form at right to start the discussion.
We can save organizations considerable costs otherwise typically allocated to multiple advisors, brokers, accountants and lawyers plus, save you valuable time coordinating multiple calendars when those resources would each be available.
