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November / Q4 / 2018 November 2018

Clearwater International Electronic Manufacturing Services

Executive summary of the EMS and ODM industry The global EMS and ODM market is forecasted to reach a size above €500bn in 2018 with expected growth rates of approx. 6% in the next years mainly driven by increased demand for technology across different sectors including automotive and industrials (IoT and AI).

With the positive growth prospects, there are a number of challenges the EMS industry currently faces, particularly supply bottlenecks of crucial components and the need for a sustainable and strong market position in an industry with ongoing consolidation and high level of competition.

Valuation level of EMS players worldwideTowards mid of November 2018 the valuation level of the EMS industry decreased approximately to the levels of beginning of 2018.

Based on an average analysis, small and medium-sized EMS companies are remaining to show significantly higher valuation levels (approx. EV/EBITDA 9x) in comparison to

large EMS providers (approx. EV/EBITDA 6x), mainly due to highly specialised focus of small and medium-sized EMS players.

M&A activity in the EMS industryIn 2018, there were 17 EMS transactions recorded up to the end of October 2018 an increase to last year’s period. Transactions are mainly driven by consolidation and acquisitions of trade buyers. In terms of geography, the majority of transaction were cross-border acquisitions.

Denmark’s largest EMS company GPV, which is owned by Danish industrial conglomerate Schouw & Co., has agreed to acquire Switzerland-based EMS company CCS Group. The transaction will lift GPV’s revenue to more than €325m.

Clearwater International exclusively advised GPV International and its shareholder, Schouw & Co, on this landmark cross-border acquisition of the Switzerland-based CCS Group. The acquisition further drives consolidation in the industry and creates one of the largest EMS players in Europe.

TransactionsExecutive summary

Transaction highlight Clearwater International Germany advises Schouw & Co. on the cross-border acquisition of CCS Group by its portfolio company GPV.

Clearwater International Germany has advised Danish industrial conglomerate Schouw & Co., on the acquisition of Switzerland-based CCS Group by its portfolio company GPV.

The deal creates a major European electronics group with over 3,700 employees, production facilities in Asia, Europe and the Americas and combined revenue of more than €325m.

GPV and CCS have both successfully served the HMLV (High-Mix/Low-Volume) segment of the Electronics Manufacturing Services (EMS) market. Both GPV and CCS provide electronics sub-assembly solutions and finished products (box-build) to their customers in high and low volume series with growing demand for this type of electronics supplier. The acquisition allows GPV to access new customers, industries and end-markets.

CCS is a specialist in electronics, cable harness manufacturing and system integration.

Buy side€110m

A portfolio company of

Acquired

2


Summary and overview of the global EMS and ODM industryThe global EMS and ODM sector is expected to maintain a growth of 6% reaching a market size of more than €500bn. Main market growth impulses are digitalisation, innovation in electronics and further penetration of electronics in non-technology sectors.

Additionally, the outsourcing trend continues. OEMs are increasingly moving production, design and development processes to EMS companies. Vertical integration is assumed to be a key to success in the EMS industry. The services often include all steps along the value chain from product development to after-sales or re-design and lifecycle services.

With more than 2,000 companies the market is still highly fragmented, but with a continued consolidation trend (see M&A Activity). Key drivers for consolidation are economies of scale, access to know-how and end-markets as well as expanding the customer base.

Recent challenges and market drivers of the EMS and ODM industryDue to drastic increase in demand for passive components in the automotive, IoT, and industrial sectors, in 2018 the EMS sector experienced a severe shortage in the procurement of passive components (resistors, capacitors). Especially the sourcing of ceramic-based R-chips (resistors) as well as the MLCCs (Multi-Layer-Ceramicchip-Capacitor) can be considered as one of the greatest challenges for EMS companies in 2018. The shortage is expected to continue until the beginning of 2020, although analyst’s opinions vary.

In the wake of the shortage of components, another factor is expected to shape the EMS industry: Further digitalisation of the supply chain between the components manufacturers, distributor, EMS provider and the OEMs by consolidation between distributors and EMS providers, in order to improve the transparency of the real demand for components. Hence, components manufacturers could adjust efficiently the production according to real demand.

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 developments.

In the DACH printed circuit board segment, the ratio decreased from 1.06, in Q4 of 2017 to 0.96 by the end of Q2 2018.

EMS in the automotive sector and other non-technology sectorsWhile growth of the EMS sector in the past years was mainly driven by the technology sector, non-technology sectors including the automotive, industrial and medical sectors are expected to offer more attractive growth opportunities for EMS players with an expected growth of approx. 8%. The rise of autonomous driving fuels the growth of EMS in the e-mobility sector.

Nowadays cars consist of numerous electronic components, such as 100-300 micro processors, more than 50 complex control units and 5-20m lines of software code with an increasing requirement for complex design of electronics in highly specialisedapplication areas.

TransactionsDevelopments

1.03

0.92

1.06

0.97 0.97

1.01

0.99

1.11

1.00

1.04

1.06

1.03

0.96

1.03

1.09

1.00

1.05

1.001.00

1.02 1.03

1.07

1.131.12

1.15

1.07

2Q15 4Q15 2Q16 4Q16 2Q17 4Q17 2Q18

DACH North America

Source: ZVEI, evertiq, Clearwater Research

"Book-to-bill" ratio of PCB segment in DACH

3


TransactionsM&A activity

Date Target Bidder Description

10/2018 CCS Group GPV International A/S

GPV International, a subsidiary of the listed Schouw & Co and a provider of EMS services, has agreed to acquire the Switzerland-based CCS Group. With the acquisition GPV International forms one of the major European players

10/2018 SERO DBAGDBAG along with management of SERO acquired the company in a management buyout transaction, from the Armin Schroder family, for an undisclosed consideration.

09/2018Johnson & Johnson Medical Devices Companies

Jabil, Inc.Jabil acquired 14 sites from Johnson & Johnson Medical Devices Companies, as part of a strategic collaboration

08/2018Chung Hong Electronics

Universal ScientificIndustrial

Universal Scientific Industrial has agreed to acquire a 60% stake in Chung Hong Electronics, the Poland-based motherboard and adapter card manufacturer, from ChungHong Electronics, for approx. €9m

07/2018Elite ElectronicsSystems Ltd.

Lonsdale CapitalPartners

Lonsdale Capital Partners has acquired an undisclosed majority stake in Elite Electronic Systems Ltd., a UK-based provider of electronic manufacturing services

07/2018Debron Industrial Electronics

Mendota GroupMendota acquired Debron Industrial Electronics, an US-based provider of value-added electronics manufacturing to the industrial, automotive, aerospace and energy end-markets

06/2018exceetelectronics GmbH

S&T AGS&T AG acquired the German operations, exceet Electronics GmbH, from Exceet Group S.E. for a deal value of €30m

05/2018Global EquipmentServices and Manufacturing

Kimball Electronics Inc.Kimball Electronics acquired Global Equipment Services and Manufacturing, an US-based provider of volume manufacturing and services for approximately €50m

05/2018 Katek GmbH Primepulse SEPrimepulse acquired Katek, a German-based provider of electronics manufacturing services

04/2018GDM Electronics NV

Elemaster SpA Tecnologie Elettroniche

Elemaster acquired GDM, a Belgium-based manufacturer and distributor of printed circuit boards and electronic manufacturing services

03/2018 Flex Ltd.Suzhou Dongshan Precision Manufacturing

Suzhou Dongshan Precision Manufacturing acquired Flex, a PCB manufacturing business of a Singapore-based EMS provider, for a total consideration of €236m

02/2018Atrenne Integrated .Solutions, Inc.

Celestica Inc.Celestica acquired Atrenne, a US-based designer and manufacturer of electromechanical solutions for military and commercial aerospace applications, for a total consideration of €112m

02/2018 Logic PDCompass Group Equity Partners

Compass Group Equity Partners acquired Logic PD, a US-based designer and manufacturer of electromechanical solutions for military and commercial aerospace applications

02/2018 Stadium Group Plc TT Electronics PlcTT Electronics acquired Stadium, a UK-based provider of electronic design and build solutions, for a total consideration of €57m

01/2018 Cartel Electronics APCT HoldingsAPCT acquired Cartel, a US-based manufacturer and supplier of printed circuit boards (PCB)

01/2018 Isola GroupCerberus Capital Management

Cerberus acquired Isola, a US-based manufacturer of base materials used in the manufacture of advanced multilayer printed circuit boards

01/2018Enertec SystemsLtd.

Coolisys TechnologiesCoolisys acquired Enertec, a Israel-based manufacturer of specialised electronic systems for the military, for a total consideration of €8m

Lonsdale Capital Partners

Poland

Selected EMS transactions worldwide

Source: CWI, Mergermarket

4


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

EV/EBITDA by Size

Size by market cap: Large-tier > €1.4bn

Medium-tier €500m - €1.4bn

Small-tier < €500m

EV/EBITDA Development

Source: S&P Capital IQ 15th November 2018, Clearwater Research

Median EV/EBITDA Median EV/EBITDA

Valuation

5

6.0x5.4x

7.5x

5.0x

8.9x

7.3x7.1x

6.0x

2018 2019Large-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 2014-16 2016-18 2017 2018 2019 2017 2018 2019 2017 2018 2019 2017 2018 2019 2017 2018 2019

Large Tier EMS Provider

Hon Hai 29,146.0 0.0 29,146.0 2.1 1.1% 8.2% 3.7% 3.4% 3.9% 2.4% 2.2% 2.7% 0.2x 0.2x 0.2x 5.9x 5.9x 5.1x 9.0x 9.1x 7.5xQuanta 5,473.2 (87.4) 5,385.8 1.4 (1.2%) 5.8% 2.4% 2.1% 2.4% 1.7% 1.4% 1.7% 0.2x 0.2x 0.2x 7.7x 8.9x 7.4x 10.7x 13.2x 10.1xPegatron 3,799.9 (154.6) 3,645.3 1.5 4.3% 6.4% 2.7% 2.3% 2.8% 1.6% 1.1% 1.5% 0.1x 0.1x 0.1x 4.0x 4.3x 3.4x 6.7x 9.1x 6.2xFlextronics 3,644.2 1,371.2 5,015.4 6.9 (2.8%) 4.5% 4.6% 4.8% n/a 2.3% 2.9% n/a 0.2x 0.2x n/a 5.0x 4.5x n/a 9.7x 7.3x n/aJabil 3,541.6 1,117.2 4,658.7 21.9 4.1% 11.0% 6.7% 6.3% n/a 2.9% 2.9% n/a 0.3x 0.2x n/a 3.9x 3.6x n/a 9.1x 7.8x n/aCompal 2,168.5 1,206.4 3,375.0 0.5 (3.2%) 11.9% 1.6% 1.5% 1.8% 1.0% 1.0% 1.2% 0.1x 0.1x 0.1x 8.2x 8.2x 6.6x 12.8x 12.1x 9.6xPlexus 1,624.1 (96.3) 1,527.9 51.0 1.4% 7.6% 6.8% 6.3% n/a 5.0% 4.7% n/a 0.7x 0.6x n/a 9.8x 9.2x n/a 13.2x 12.5x n/aFabrinet 1,620.5 (255.3) 1,365.1 44.0 18.2% 10.1% 9.3% 10.2% n/a 7.4% 8.1% n/a 1.1x 1.1x n/a 11.9x 10.4x n/a 14.9x 13.1x n/aSanmina 1,512.1 166.7 1,678.8 22.2 1.7% 4.8% 4.9% 4.5% n/a 3.2% 2.8% n/a 0.3x 0.3x n/a 5.6x 5.9x n/a 8.6x 9.3x n/aWistron 1,444.4 1,791.4 3,235.9 0.5 3.7% 16.5% 1.6% 2.0% 2.2% 0.7% 1.2% 1.3% 0.1x 0.1x 0.1x 8.3x 6.2x 5.4x 19.1x 10.8x 8.8x

Median 1.5% 7.9% 4.1% 3.9% 2.4% 2.4% 2.5% 1.5% 0.2x 0.2x 0.1x 6.8x 6.0x 5.4x 10.2x 10.0x 8.8xMean 2.7% 8.7% 4.4% 4.3% 2.6% 2.8% 2.8% 1.7% 0.3x 0.3x 0.1x 7.0x 6.7x 5.6x 11.4x 10.4x 8.4x

Medium Tier EMS Provider

Celestica 1,219.6 (40.8) 1,178.8 8.9 2.2% 5.1% 4.1% 4.4% 5.0% 2.9% 3.2% 3.8% 0.2x 0.2x 0.2x 5.3x 4.6x 4.1x 7.5x 6.2x 5.4xBenchmark 907.9 (284.9) 623.0 20.8 (6.2%) 4.9% 5.4% n/a n/a 3.5% 3.1% 3.5% 0.3x 0.3x 0.3x 5.2x n/a n/a 8.1x 9.0x 7.5xCTS Corp. 802.7 (47.6) 755.1 24.3 (0.6%) 8.8% 15.2% 19.0% 20.0% 10.3% 14.6% 15.8% 2.0x 1.8x 1.7x 13.3x 9.6x 8.7x 19.5x 12.5x 11.1xHana 718.9 (247.5) 471.4 0.9 (1.1%) 2.9% 15.4% 14.5% 14.8% 10.5% 8.4% 9.3% 0.8x 0.8x 0.7x 5.2x 5.5x 5.0x 7.7x 9.5x 8.0xVS Industry 601.2 48.6 649.8 0.3 13.4% 28.1% 8.5% 7.5% n/a 6.4% 5.6% n/a 0.8x 0.7x n/a 9.9x 9.5x n/a 13.3x 12.7x n/a

Median (0.6%) 5.1% 8.5% 11.0% 14.8% 6.4% 5.6% 6.6% 0.8x 0.7x 0.5x 5.3x 7.5x 5.0x 8.1x 9.5x 7.8xMean 1.6% 10.0% 9.7% 11.3% 13.3% 6.7% 7.0% 8.1% 0.8x 0.8x 0.7x 7.8x 7.3x 6.0x 11.2x 10.0x 8.0x

Small Tier EMS Provider

Ducommun 423.7 200.1 623.8 37.1 (9.5%) 6.4% 8.4% 10.3% 11.7% 4.3% 4.1% 7.1% 1.3x 1.1x 1.1x 15.0x 11.0x 9.4x 29.1x 27.3x 15.6xTT Electronics 383.6 47.6 431.1 2.5 (14.1%) 12.7% 8.6% 11.0% 11.6% 5.5% 7.8% 8.4% 1.0x 0.9x 0.8x 12.0x 8.0x 6.8x 18.8x 11.3x 9.4xSVI 326.4 (37.7) 288.7 0.2 9.9% 16.8% 7.0% 7.2% 7.6% 4.6% 4.8% 4.8% 0.8x 0.7x 0.6x 12.1x 9.9x 7.8x 18.4x 14.7x 12.2xNeways 129.2 38.8 168.0 11.3 8.4% 11.3% 5.2% 6.2% 6.6% 3.3% 4.4% 4.8% 0.4x 0.3x 0.3x 7.4x 5.6x 5.0x 11.6x 7.9x 6.8x

Median (0.5%) 12.0% 7.7% 8.7% 9.6% 4.5% 4.6% 5.9% 0.9x 0.8x 0.7x 12.1x 8.9x 7.3x 18.6x 13.0x 10.8xMean (1.3%) 11.8% 7.3% 8.7% 9.4% 4.4% 5.3% 6.3% 0.9x 0.8x 0.7x 11.6x 8.6x 7.2x 19.5x 15.3x 11.0x

3,0x

4,0x

5,0x

6,0x

7,0x

8,0x

9,0x

Nov 2013 Nov 2014 Nov 2015 Nov 2016 Nov 2017 Nov 2018


TransactionsAbout Clearwater

Coordinating as a single team, our 250 experienced professionals have been responsible for the successful completion of almost 1,500 deals worth in excess of €70bn; in the last ten years over half of these have had transaction values between €20m 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 through to management buy-outs (MBOs) and fundraising transactions.

Our independence from any larger financial institution or consulting firm ensures that we can give truly objective advice, guiding clients through the challenges they face. All projects are partner-led, offering high levels of personal service, and laying thegroundwork for lasting relationships. Many of our clients return to us for advice on multiple occasions.

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.

Automotive Business services Consumer Energy & utilities Food & beverage

Financial services HealthcareIndustrials

& chemicalsReal estate TMT

deals

deals

deals

deals

deals

deals

deals

deals

deals

deals

256 201 227 44 60

35 84 376 50 155

10 Industry sectors

Offices worldwide15

1488

55%over

of deals involveprivate equity

Debt advisorydeals

266

deals completedeach year

100over

Employees

250Total transactions

completed

Facts and figures

6

clearwaterinternational.com China - Denmark - France - Germany - Ireland - Portugal - Spain - UK - US

Markus Otto

Partner, Germany

Tel: +49 69 58302 77 24Email: [email protected]

Carsten Rydahl

Partner, Denmark


Philippe Guezenec

Partner, France

Tel: 33 1 53 89 0504Email: [email protected]

Jon Hustler

Partner, UK

Tel: +44 7788 144 470Email: [email protected]

Our international industrials team

John Sheridan

Partner, Ireland


Francisco Gómez

Partner, Spain


Barry Chen

Partner, China

Tel: + 86 21 6341 0699 x 881Email: [email protected]

Rui Miranda

Partner, Portugal


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