Issue link: https://iconnect007.uberflip.com/i/1519075
APRIL 2024 I PCB007 MAGAZINE 13 LaRont: Shawn, let's talk about broader market projections and the regional sustainability of this business. Some say the current U.S. situation is not sustainable. Where will we be in 10 years? DuBravac: is is the clas- sic chicken-and-egg prob- lem. If I build my busi- ness, will I continue to have enough business? Is it a sus- tainable investment? is is a big debate everywhere right now. You have government buyers and ITAR that have settled the market in a certain place. Can the market grow outside of where it has naturally settled? On the margin, I think it can. e next question is, does that new growth get captured by already participating compa- nies as they expand capacity, or does it expand from the existing base? e demographic change in the industry is interesting. You've got people who are ready to retire; the next gen- eration doesn't want to take over the business. So, they're looking for a liquidity event, and they will take it any way they can. Some of the fuzziness in Tom's numbers is because some companies will just wind down. e owner will just decide one day, "We're done," then turn off the lights and walk away. at could be a long, slow process. It could even be a process that's ultimately invoked by the next genera- tion when they decide it's time. So, yes, there is growth in North America happening on the margin, but it's still a big unknown about how big that grows and where. Investment into EV infrastructure is a good example of this. ere is production going into that. LG just announced a battery factory, and we will see more of those. ere's a big EV investment in the Southeast U.S.—2022 was a record number for Georgia, North Carolina, South Carolina, and Tennessee for in-state investments. ose numbers may have even so most have been reason- ably leveraged. e valuations could be down a bit, and more investment will be moved into alternative financing, like a seller note or rollover equity. ere are just not that many PCB shops to buy. Big compa- nies must keep buying smaller shops or do something a lit- tle bit differently. On the EMS provider side, there are a lot of shops, and the demograph- ics will likely support those deals, so I expect to see a sim- ilar number of deals this year. I'm not sure about the total value of those deals because the bigger deals certainly will be affected by higher interest rates. Johnson: With this change in the financial marketplace, does it change one's growth strategy? Does available funding encourage more internal investment rather than looking for a CapEx partner to sell the assets to? Kastner: Obviously, lower interest rates help with CapEx. To grow, the bigger companies must invest more. For example, I don't think there's anyone over $20–$25 million who doesn't have direct imaging. If they want to stay in the game, they must invest in CapEx. e smaller guys will either sell or have an exit strategy. But they've existed for 30 years, so there is a lot of ingenuity and intelligence there. Johnson: In this environment, can you build a PCB fabrication business without DoD? Kastner: I don't think so. Most new builds are captive, like GreenSource. Alpha Circuit in Schaumburg, Illinois, is building a new facil- ity and bringing all their shops into one. If you don't have that business already, it would be incredibly tough. Without the DoD, I do not believe we would have a PCB fabrication industry in the United States. Shawn DuBravac