Overall, economic conditions have heavily affected M&A activity within the EMS sector. There were only six completed merger / acquisition transactions in the electronics manufacturing services (EMS) sector in Q3 2009. Compared to Q3 2008, Chart A shows the six transactions in Q3 2009 represent a steep decline in the EMS M&A trend.
Chart A: Completed EMS transactions
As shown in Chart B, vertical / horizontal convergences represented three transactions, or 50% of total activity in Q3 2009, down from four transactions in Q2 2009. There was one EMS consolidation in Q3 2009 up from zero transactions in Q2 2009.
Chart B: EMS M&A by deal type (quarter comparison)
Accordingly, as a percentage of total transactions, EMS consolidation represented 17% in Q3 2009.
The number of EMS divestitures remained stable with one transaction in both Q3 2009 and Q2 2009. There was one transaction classified as private equity investment in Q3 2009, one more than the previous quarter. There were no transactions classified as OEM divestitures in Q3 2009.
As illustrated in Chart C, three transactions occurred within Europe in Q3 2009, representing 50% of total transactions. This represents the same number of transactions as the previous quarter. There were two U.S. / Canada deals; up from one in Q2 2009. There was one transaction within Asia, or 17% of transactions, one more than during Q2 2009 within that geography. There were no cross-border transactions for this quarter.
Chart C: EMS M&A by geography (quarter comparison)
Note: “High/High” indicates cross-border transactions between Japan, Taiwan, Western Europe and U.S./ Canada; “High/Low” indicates cross-border transactions between high-cost regions and low-cost regions.
As shown in Chart D, transactions by size for the quarter were led by the Micro Tier, totaling three, or 50% of all transactions. There were two transactions categorized as small in Q3 2009, or approximately 33% of the total. Finally, there was one transaction (approximately 17% of total transactions) in the Large Tier. Due to the recent economic market conditions, larger transactions were more difficult to complete in the past few quarters.
Chart D: Q309 EMS mergers / acquisitions by size
EMS category tier information for EMS companies, according to Lincoln International, is based on sales dollar figures, by tier, as follows:
- Large (Tier I)…Greater than $3 billion
- Mid (Tier II)…$300 million to $3 billion
- Small (Tier III)…$150 million to $300 million
- Micro (Tier IV)…Below $150 million
The EMS industry had its highest revenue total in 2008 than any year in its history, outpacing the previous record year of 2007. However, on an LTM (last 12 months) 2009 basis, the 18 largest publicly traded EMS providers in the world produced a sales decrease of 16.3% versus the same period a year earlier. This represents only the second year since 1999 that showed a revenue decline year-over-year. The 2009 decline was much more pronounced than the 2001 decline of approximately 1%.
As shown in Chart E, overall EMS revenue during the last 12 months (LTM) has decreased across all tiers perhaps not surprisingly in light of the recent general economic downturn. Large EMS providers’ revenue declined 16.5% on an LTM 2009 basis versus an increase of 14.5% in CY2008. Revenue also declined in the Mid Tier with LTM 2009 revenue dropping 15.6%. Although Small Tier EMS companies’ LTM 2009 revenue declined 6.6% versus an increase of 6.3% in CY2008, they were the least affected of all the tiers.
Chart E: EMS industry year-on-year revenue growth (by tier)
The Micro Tier providers’ revenue declined 16.3% in LTM 2009, worse than their 1.5% decrease in CY2008. Forecasts for the EMS market have been moderated due to the economic downturn, however longer term growth will continue to be driven by end markets. EMS companies will see strong growth, with the medical, computer, and consumer market segments leading the way. (See Table F, below)
In regards to long term growth, medical is the end market that offers the most significant growth potential. This end market is expected to grow at a CAGR of 10.9% from 2008 to 2013.
Table F: Global EMS market by industry
The computer sector is also expected to show strong growth at a CAGR of 9.5% over the next five years. Also showing growth are the consumer and communications industries with expected CAGRs of 7.9% and 7.0%, respectively, through 2013.
From 2008 to 2013, the annual growth rates for the industrial, automotive, and defense end markets are expected to be 6.5%, 6.2%, and 5.3% annually, respectively.
Overall, the global EMS market is expected to grow 8.1% annually from a $294 billion market in 2008 to a $435 billion market in 2013. It is important to note that although still showing growth, the forecasts are much less aggressive than last year.
The shift in production to low-cost regions is starting to wane. Today, customers are often requiring their EMS partners to manufacture products near the regions where they are to be sold. For certain high-volume products like mobile phones and PCs, customers need to leverage the lowest cost in manufacturing.
However, for other products the labor cost differentials are becoming less significant when weighed against the total cost of production. Offshore migration will still take place but at a slower pace. According to Electronic Trend Publications, from 2008 to 2013, Asia is expected to grow at a CAGR of 9.2% as compared to 6.3% annual growth for North America and 6.2% annual growth for Europe. The rest of the world is expected to grow at a 6.0% CAGR over the same period. Asia will represent over 65% of the EMS market by 2013 compared to approximately 17% for North America.
Source: Lincoln International Electronics Group, VentureOutsource.com, October 2009
Get list of EMS manufacturers for your requirements (Its free)
Save time and money. Find quality EMS manufacturers. Fast. Venture Outsource has a massive, global database of contract electronic design and manufacturing capabilities. Speak with a Provider Advisor.
“Was able to very quickly find details on the important elements of setting up EMS and ODM partnerships, talked with an advisor for personalized info on quality providers matching our requirements while getting up to speed quickly about the industry and connect with key staff from like-minded companies and potential partners. Great resource.”
— Jeff Treuhaft, Sr. Vice President, Fusion-IO
Advisors tell you matches we find for your needs, answer your questions and, can share EMS industry knowledge specific to your industries and markets.
