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Quiet M&A Defines Electronics Supply Chain

If you follow business news, you will occasionally notice stories about mergers and acquisitions in the technology industry.

Odds are you've read about big stories like BlackBerry looking for a buyer, Cisco’s latest acquisitions, or Dell’s latest negotiation with bidders to go private. However, unless you are an electronics M&A junkie like I am, you probably didn't notice ABB's $950 million purchase of power supply manufacturer Power One Inc. back in May 2013. I guess that big mergers in the power supply, capacitor, and diode markets don't get a lot of press.

The electronics-supply chain is the foundation of the technology industry, and while many of these deals don't get a lot of notice, there is a lot of M&A action here. It's probably not surprising to anyone that in the last 12 months there were nearly 600 announced acquisitions of enterprise software companies, according to Capital IQ. But did you know that there were also almost 140 deals in the electronic components market totaling more than $6 billion? A lot of overlooked activity is occurring in our industry.

I took a look at activity over the last 12 months in four key parts of the electronics supply chain:

  1. Semiconductors
  2. Electronic components (includes companies primarily selling items like amplifiers, antennas, diodes, capacitors, resistors, LCDs, and connectors)
  3. Distributors
  4. Technology manufacturing services (includes companies primarily in engineering design services, manufacturing, circuit assembly, testing, and prototyping)

What I found is summarized in the following table:

Last 12 months from August 12, 2013. (Source: Capital IQ)

Last 12 months from August 12, 2013.
(Source: Capital IQ)

There are a couple of data points that can be drawn from this data:

  1. Semiconductors: First, it's no surprise that semiconductor deals are bigger and have higher multiples. Chip companies are R&D intensive, tend to be larger, and many products are highly differentiated. The business is capital intensive on the front end, but highly scalable on the back end.
  2. Electronic components: The components industry also produced nearly as much M&A activity as the semiconductor market, with similarly large deals.The big difference between components and semiconductors is the multiple paid in M&A transactions – over 10x EBITDA for semiconductors and only 6.5x for components. This too should not be a surprise, as components include many segments, like capacitors for example, that are more commoditized than the semiconductor market.
  3. Distributors: There were also a fair number of deals in the distributor market, 125, at a reasonable multiple (9x) but deals were very small on average. As I mentioned in my last blog, this is likely because big distributors active in M&A like Avnet are currently rounding out their portfolios but not necessarily taking on big acquisitions of competitors right now.
  4. Electronic manufacturing: EMS and engineering services offered the smallest number of deals and by far the smallest deal sizes, but still at a reasonable multiple of almost 9x. What I've seen in this marketplace are companies making niche acquisitions to bring in a manufacturing site and/or engineering team in a particular geography or industry niche. With no reported deals at more than $50 million, there have been no large mergers of equals or big players acquiring a smaller competitor.

Don't be surprised if the next big acquisition in the electronics-supply chain market is overshadowed by Facebook's latest add-on. However, without the electronics supplying the hardware platforms, there would be no Facebook.

You may not read about the next acquisition in the power supply market, but the deals that are taking place quietly behind the scenes are a good sign of the industry's health. Let us know what you think in the comments section.

3 comments on “Quiet M&A Defines Electronics Supply Chain

  1. SP
    September 12, 2013

    Mergers and acquisitions are the trends of industry these days. This is one way tgk kill competition and make monopoly. Blackberry looking fof bidder looks diffiulf.

  2. Hailey Lynne McKeefry
    September 12, 2013

    You are absolutely right…I don't go looking for these sorts of deals. Perhaps we should. It's clear that there are all sorts of lessons to be learned. thanks!

  3. FLYINGSCOT
    September 13, 2013

    I really enjoyed this article.  Microsoft taking over Nokia is a biggy.  I imagine that we will hear something similar soon on Blackberry as it has really lost its way over the last few years.

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